Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ¨ NO x

Indicate by check mark if the registrant is not required to file reports pursuant
to Section 13 or Section 15(d) of the Act. YES ¨ NO x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. YES x NO ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). YES x NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). YES ¨ NO x

The aggregate market value of common stock held by non-affiliates of the registrant as of September 30, 2011 (based on the last
reported sale price on the Nasdaq Global Market as of such date) was approximately $435,580,350. As of May 18, 2012, there were 41,828,456 shares of the registrants common stock outstanding.

(1) Portions of the Registrants Proxy Statement for the fiscal year 2012 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K. Except as
expressly incorporated by reference, the proxy statement is not deemed to be part of this report.

NetScout Systems, Inc., or we, or NetScout, provides the equipment that allows our customers to ensure that applications
are running smoothly across their networks. NetScout designs, develops, manufactures, markets, licenses, sells and supports market leading application and network performance management and service assurance solutions focused on assuring service
delivery quality, performance and availability for some of the worlds largest, most demanding and complex internet protocol (IP) based service delivery environments. We manufacture and market these products in integrated hardware and software
solutions that are used by commercial enterprises, large governmental agencies and telecommunication service providers worldwide. We have a single operating segment and substantially all of our identifiable assets are located in the United States.

We conduct our business globally and our sales force is managed in four main geographic teams: United States, Europe, Asia
and the rest of the world.

We are a Delaware corporation founded in 1984 and our principal executive offices are located at
310 Littleton Road, Westford, Massachusetts, and our telephone number is (978) 614-4000. NetScouts internet address is http://www.netscout.com. Information contained or referenced on our website is not incorporated by reference in and
does not form a part of this Annual Report on Form 10-K. NetScout makes available, free of charge, on our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (Exhange Act), as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and
Exchange Commission (SEC).

With a sustained history of 28 years of technology innovation, NetScout continues to lead the market and is changing how organizations manage and optimize the delivery of business applications and
services and assure user experience across global IP networks. NetScout has continually advanced its product portfolio to meet the needs of organizations to provide solutions to manage dynamic network and application environments and to improve user
experience by assuring service availability, quality and reliability. Our solution is a highly scalable and flexible real-time service delivery management platform that supports a wide-range of enterprise information technology (IT) operations and
management organizations including network operations, application managers, network operations centers, network engineering, security operations and service delivery teams. In addition, within the service provider segment, our solutions are
deployed to a broad range of operational users including the network operations, network engineering, service operations, application groups, customer care, marketing, chief technology officers and advance engineering groups.

During fiscal year 2012, we completed three acquisitions, bringing unique technology, products and new capabilities to our solution set
in support of our unique Unified Service Delivery Management (USDM) strategy, thereby further enhancing the value of our solution to new and existing customers and increasing our market differentiation. In April 2011 we completed the acquisition of
Psytechnics, Ltd (Psytechnics) who was a pioneer and recognized innovator in IP Voice, Video and Telepresence unified communications services performance management. In October 2011, we completed the acquisition of Fox Replay BV (Replay), a leading
provider of user session reconstruction and replay technology that enables organizations to perform forensic analysis of end-user actions in support of cyber intelligence activities. In November 2011, we acquired Simena, LLC (Simena), an established
provider of high performance, low-latency IP packet flow-based network monitoring switching technology that enables IT organizations and service providers to aggregate, filter and control network traffic for data, voice, and video monitoring and
cyber security deployments. These acquisitions have brought key new technologies and capabilities to our solution offering that greatly enhance our USDM strategy enabling further market differentiation of our solution offerings and will accelerate
our customers time to value. Each of

these acquisitions complement our focused packet-flow strategy and will enable us to continue to build a leading solution set that meets customer requirements in streamlining their network
monitoring architecture, enhances the usefulness of our solution in cybersecurity implementations and addresses the growing need to support Unified Communications (UC) services along with business data applications. All three of these acquisitions
have been completed and are fully integrated into the organization.

NetScout solutions use advanced packet flow technologies
to enable these organizations to gain greater, more granular visibility into the interdependencies of network and application behavior to effectively monitor, analyze and assure the end-to-end performance of data and UC business services.
NetScouts value proposition to our customers is to identify service delivery issues early to enable the identification and prevention of significant service degradations or failures early before large numbers of users are impacted. As a result
of our highly scalable and extensible USDM framework, organizations gain superior and sustainable visibility into user experience and the interrelated performance of applications and networks to better understand their service delivery environment.
This visibly enables a more proactive management strategy and enhances operational agility enabling the IT operations and management organization to:



Optimize service delivery performance and increase efficiency and use of existing infrastructure;



Protect the user experience and assure business service continuity;



Simplify managing complex service delivery environments and reduce operations and support cost and complexity;

Large enterprises, public sector agencies, and
telecommunication service providers are critically dependent upon their data networks and the Internet to generate and deliver information and business services to their customers, suppliers, investors, employees, and citizens. Simultaneously, these
data networks have taken new and strategic roles within these organizations, including carrying voice and video traffic, and serving as the platform for the next generation of massively distributed, virtualized and service-oriented application
architectures. Application architectures are changing as well, with an increasing trend towards data center consolidation and private and hybrid cloud service delivery models. Furthermore, rapidly advancing server technology and exploding multimedia
applications continue to drive growth in traffic levels which have spawned a new wave of infrastructure upgrades. In parallel, the service provider market continues to undergo fundamental changes with the accelerating transition to IP based
services, requiring new network infrastructures and presenting new and daunting challenges for assessing and assuring service quality. The combination of these fundamental trends has created increasing levels of complexity coupled with growing
business dependence requiring IT organizations to take a different approach to managing their service delivery networks to assure an always-on, anywhere, and device access to business service delivery.

NetScout is in a unique position, addressing both the enterprise and service provider markets. Building on our common packet-flow
technology foundation, we have developed substantial expertise in assuring IP network-based service delivery that has enabled us to develop a highly scalable solution that not only addresses the needs of both the enterprise and the service provider
markets, but also allows us to transfer this knowledge and technology development between these customer groups.

We market
and distribute our products globally through our own direct sales force and through strategic channel partners that include distributors, value added resellers and systems integrators. We have two primary customer groups which include both the
enterprise and service provider markets. For our enterprise markets, we focus on the Global 5000, which includes industries such as financial, healthcare, manufacturing, retail, technology, utilities, education, and the public sector, which includes
agencies of federal, state and local governments. In the service provider customer group, we sell focused solutions to mobile operators, wireline operators and cable multi-service operators globally. We had no single customer or channel partner
representing more than 10% of revenues in fiscal years 2012, 2011 or 2010.

In todays dynamic business environment, the IP network is increasingly being viewed as a strategic and critical success factor for many organizations. Consequently, the IT organization is under
immense pressure to orchestrate the seamless and reliable delivery of services to meet increasing business and user expectations. IT must provide more services and greater business value with fewer resources and lower operating budgets than ever
before. The IT mission is focused on reducing the cost of IT while increasing IT performance, improving operational efficiencies and delivering the highest quality and availability of IT services possible. This, coupled with the ever changing
technology landscape and the continued increasing complexity of IT infrastructure, drives the need for a more automated and unified approach to managing service delivery. As a result, IT management must reduce the cost of service delivery, address
increasing complexity, scale globally and adapt to emerging technologies such as cloud services, virtualization and unified communication services.

The result is increasingly large, geographically dispersed, and complex networks and infrastructures that are challenging to manage and that make obtaining consistent performance and service levels
difficult to assure. Application and network malfunctions, resource contention, and infrastructure and application mis-configurations can all cause service disruptions, lost revenue and customer dissatisfaction. Consequently, the IT operations
organization is recognizing the critical importance of identifying and addressing business service performance problems quickly and proactively. The NetScout nGenius® portfolio of products is designed for this rapidly growing market of organizations running complex, widely-distributed networks that provide always-on service
delivery environments.

Enterprise Environments

Within the enterprise environment, the value of NetScouts nGenius® and Sniffer technologies enables IT organizations to protect and improve service delivery quality while evolving
their service management model from a reactive approach, that responds to user complaints, to a more proactive model that is able to identify and address business service performance issues before they become serious and impact large numbers of
users. Organizations can efficiently assure service delivery consistently from the data center to local users and over the wide area network (WAN) to branch offices, freeing up scarce IT resources to spend time on more strategic initiatives. Some of
the current enterprise IT initiatives our solutions support include:



Data Center Modernization & Virtualization  We enable IT organizations to manage the delivery of services across virtual and
physical environments, providing a comprehensive, unified view of application and network performance. Intelligent early warning of emerging issues with the ability to analyze both physical and virtual services within the data center enables
organizations to optimize datacenter infrastructure investments, protect against service degradations, and simplify the operation of complex, multi-tier application environments.



Unified Communications  We deliver deep applications-level unified visibility into voice, data and video services side-by-side in order to
understand the interrelationships of all services that traverse the network infrastructure and assess quality and performance of the delivery of these services. Application-level visibility enables the UC team to assess beyond typical network
performance to see into voice or video quality to best assess the true user experience.



Branch Office & WAN  We bring extended visibility into the performance of applications and networks at and between locations,
including cloud-based services, with a unified view of end-to-end service delivery enabling collaborative problem-solving and uniform planning, enabling IT organizations to reduce the cost of managing their remote sites.



Bring Your Own Device and Enterprise Mobility  With the consumerization of IT, the IT operations and management teams are confronted with
supporting a wide range of new devices on corporate networks. Although IT loses direct control of the environment, user performance expectations remain consistent with corporate-supplied devices. We provide service assurance across

the infrastructure and applications supporting a broad range of service delivery strategies including wireless service delivery to enable intelligent early warning and rapid-response
troubleshooting, regardless of the connected devices.



Process Improvement & ITIL Initiatives  We deliver real-time and historical information that provides the necessary insight to
restore service, manage capacity, and understand the users quality of experience. The unified service delivery management approach enabled by the nGenius solution empowers IT organizations to collaborate more meaningfully while reducing the
overall costs of IT operations through a unified platform delivering a common set of metrics and insight across disparate IT departments. The nGenius solution also provides IT organizations a highly efficient service-oriented workflow that aligns
with Information Technology Infrastructure Library (ITIL) process models.



Structured Approach to Service Assurance & Troubleshooting  Our solution provides real-time enterprise-wide views, backed up by
high-definition, actionable information on all network traffic, including individual applications and end-users, for rapid isolation of network issues, quick service restoration, and a minimization of business impact.

Telecommunication Service Provider Markets

Our opportunity in the service provider market stems from the industrys transformation to next generation all-IP networks driven by migration to third generation and Long-term Evolution (LTE)
technologies. The move to IP has touched all sub-segments of the service provider environment. It is recognized that moving to an all-IP environment enables service providers to optimize their operating environment, consolidate and converge multiple
networks and gain a high degree of flexibility in service offerings due to the dynamic nature of modern IP technology. Most carriers are moving from legacy circuit switched environments, where each user connection or service uses a dedicated circuit
with dedicated bandwidth, to highly dynamic packet switched IP-based environments. The value of IP is that service providers gain a high degree of efficiency and provisioning flexibility for services over shared facilities with security and service
quality capabilities coming from the underlying network equipment technology rather than through dedicated connections. As a result, service providers now require a much higher level of understanding of the traffic flows in a true multi-service
delivery environment.

Telecommunication Service Provider Environments

As service providers transform their operations using the power of the modern IP network, they are confronted with new challenges in
assuring services over an increasingly dynamic operating environment. New multimedia applications, migration from time division multiplexing (TDM) technology, or asynchronous transfer mode (ATM) technology, transport networks to a next generation
all-IP network, introduction of Voice over IP (VoIP) along with the transition to IP multimedia sub-systems (IMS) require a new and innovative approach to assuring the delivery of next-generation broadband IP services.

Todays service providers are focused on creating a compelling set of services, with a high quality user experience, while also
keeping an eye on reducing operational complexity and costs. This, coupled with the challenge of IP transformation activities and emerging new technologies LTE, Internet Protocol Television (IP-TV) and cloud services drives the need for a more
automated and unified approach to managing service delivery and the subscriber experience. Service providers must reduce the cost of service delivery, address increasing complexity, scale globally and adapt to emerging technologies such as cloud
services, virtualization and unified communication services while assuring high quality user experiences to retain their revenue base.



For Mobile Operators  The fundamental transformation of the mobile network to all-IP enables mobile operators to build highly-scalable
service delivery environments to offer new services to meet the growing subscriber demand for data, voice and video-centric services and to consolidate and simplify network operations. However, to capitalize fully on the value of IP and the
significant market opportunities, mobile operators need detailed IP packet-level insight and core-to-access visibility.

The nGenuis Service Assurance Solution delivers comprehensive, high definition visibility into end-to-end performance of the network, applications, services and users. Using a family of unified
software-based analytics modules and rich packet-flow based metadata, the nGenius Service Assurance Solution delivers unmatched visibility into the end-to-end service delivery environment. By delivering a broad range of intelligent data sources, the
nGenius solution provides unified visibility into virtually any place in the network, extending from the datacenter infrastructure and virtualized servers to the network core, edge and branch office, to deliver highly accurate insight into the
users application performance experience.

The nGenius Service Assurance Solution provides the following
capabilities:



Service visualization and intelligent early warning;



Application and network performance management;



Service and policy validation;



Service optimization and capacity planning; and



Advanced trending and reporting capabilities;

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Deep forensics and historical analysis.

The nGenius Service Assurance Solution is a fully integrated platform that uses a number of specialized software analytics modules and distributed intelligent data sources consisting of:

nGenius Service Delivery Manager  A real-time business service dashboard that provides unified visibility into service delivery in the
context of how services are delivered and consumed to produce timely, actionable management insight. Combining real-time and historical views of service domains the dashboard automates the detection of service quality problems and emerging security
threats across physical, virtual, and cloud-based services from the application hosting environment, through the network, to the user.



nGenius Voice | Video Manager  Is an advanced UC performance management and analysis analytics module enabling IT staff to proactively
manage the performance and user experience for a broad range of collaboration-enabling real time communications services, such as telepresence, video, and voice. The solution delivers network performance and granular application-specific metrics for
IP-based voice and video session transmission and conversation quality to reveal real-time service performance and the true user experience. As a result, IT organizations can achieve the required actionable visibility into the end-to-end behavior
and quality UC applications and services.

Sniffer Portable Analyzer Product Family  is a stand-alone field service analysis module that provides portable network and application
analysis capabilities for field troubleshooting activities. Built on widely deployed Sniffer technology, the software-based analysis tool is deployed on individual technician laptops to support segment-specific portable analysis and troubleshooting
activities enabling the rapid isolation of issues for wired and wireless networks. The Sniffer Global version of the product is integrated with Ciscos Mobility Services Engine to enable location-based visibility for wireless end-points.



nGenius Intelligent Data Sources  nGenius Intelligent data sources provide the capabilities of gathering and analyzing information rich
packet-flow data from across the network to enable the granular analysis and reporting capabilities of the nGenius Solution. nGenius InfiniStream appliances provide hardware-based data capture and metadata creation for the nGenius Solution and
support 1 Gigabit and 10 Gigabit network connections and scale from one to 96 terabytes of packet storage capability. The nGenius Virtual Agent enables granular network and application visibility from within virtual server environments and the
nGenius Integrated Agent integrates into network equipment, such as the Cisco® Integrated Services Router and
Cisco Unified Computing express system to enable extended visibility into network and application performance from branch offices. nGenius Collectors support collection of network-based statictics from network equipment supporting
standards-based data such as Cisco NetFlow, jFlow and sFlow.

Adaptive Session Intelligence (ASI) Technology  provides the extensible technology foundation for the nGenius Solutions rich
real-time analytics capabilities. It enables the creation of statistical meta data, session transaction records and adaptive session traces enabling the monitoring of all users, all applications and all services consistently across the network. ASI
technology is a critical differentiating technology that enables the performance at scale and real-time flexibility needed to address large and complex service delivery environments



nGenius 1500 Series Packet Flow Switch  The nGenius packet flow switch enables powerful aggregation and flexible intelligent filtering
capabilities enable the network team to collect traffic from a single monitoring point and deliver this traffic to many devices eliminating the need for redundant tapping points or mirror/SPAN ports. This enables the IT organization to better
capture targeted traffic to enable a more flexible and comprehensive approach to important packet-flow data. In addition to consolidating vendor complexity, this enables IT organizations to efficiently consolidate scarce and costly monitoring points
and intelligently share valuable traffic flows across multiple management and cybersecurity tools consistently.

Lawful Interception

Sold into very specialized markets addressing the law
enforcement community, NetScouts Replay NetAnalyst product supports lawful interception (LI) activity and interprets intercepted internet data and reconstructs all communications. The sessions can be viewed as easily as the internet
itself. Communications are played back in the original order and appearance, guaranteeing the ability to see what the target saw, or hear what the target heard.

Product Enhancements and New Products

NetScout continuously enhances its
solutions to meet the increasing demands and ever changing technology landscape of IP networks and service and applications. Typically, these types of changes result in modest increases in the functionality of the products that do not meet the
criteria for capitalization. In recent years, we have also delivered major product upgrades across our product lines, more tightly integrating deep packet analysis and forensics into our top-down performance management workflows, improving the
flexibility of our industry-leading intelligent early warning capabilities, and adding support for new sources of user experience and performance related metrics.

In our fiscal year 2012, we made a number of major enhancements to our nGenius Service Assurance Solution that includes capabilities to further support mobile networks, with additions of LTE-specific
capabilities as well as a broad range of incremental specialized capabilities. Specific new products introduced during our Fiscal Year 2012 include:



nGenius Packet Flow Switch  Is the first announced product resulting from NetScouts acquisition of Simena. Announced February, 2012,
the nGenius 1500 series packet flow switch is a high-performance, ultra-low latency network monitoring switch that enables enterprise IT organizations and service providers to cost-effectively aggregate, filter and distribute network traffic to the
nGenius Service Assurance Solution and other monitoring, compliance and security tools.



nGenius Integrated Agent for Cisco Unified Computing System express (UCSe)  further extends NetScouts monitoring capabilities
into second generation Cisco ISR platforms to support the Cisco UCSE operating environment providing valuable insight into service performance, user experience and to identify security threats closer to the point of a user's service consumption for
site-to-data center, site-to-cloud and site-to-site service traffic.

To have greater operational impact on assuring performance of applications and service delivery, NetScout has integrated its technology
with third-party management consoles and business service management systems. This integration allows organizations to receive alarms on impending performance problems and to link into the nGenius solution in order to perform detailed problem
analysis and troubleshooting. By providing seamless integration into management platforms, NetScout fills a significant gap in the third party product functionality and visibility into the interaction of applications, services and infrastructure
resources from a packet-based network vantage point. NetScout collaborates with technology partners to provide integrated solutions and extend the value of the nGenius Service Assurance Solution for application and network performance management
across the organization. Using packet-flow data, key performance indicators and other sources of performance information derived from the nGenius Service Assurance Solution, integrated solutions enhance an organizations ability to optimize,
simplify and protect the service delivery environment.



Cisco Systems  NetScout is a member of the Cisco Developer Network Program for Mobility, Unified Communications and Advanced Routing.
NetScout has integrated its widely deployed nGenius probe technology into the Cisco Integrated Services Router (ISR) platform enabling our joint customers to leverage the end-to-end capabilities of our service assurance solution from the datacenter
to the branch office. We have received certification of our compatibility and interoperability with Ciscos Unified Communications platform. NetScout has also integrated its Sniffer Global product with the Cisco 3300 series Mobility Services
Engine, to provide contextual location information to simplify and improve management of wireless networks.



EMC®
Ionix Control Center (formerly SMARTS®)  NetScout is an EMC Corp. (EMC) Velocity2 partner and
provides integration between the nGenius Service Assurance Solution and the EMC Ionix Service Assurance Manager, EMC Ionix IP Availability Manager and EMC Ionix Discovery Manager. Integration between the nGenius solution and EMC Ionix solution
provides our joint customers with complementary visibility into the packet-flow data within the service delivery environment.



Hewlett-Packard Company  NetScout is a Platinum Business Partner in Hewlett-Packards (HPs) Enterprise Management Alliance
Program, and provides integration between the nGenius Service Assurance Solution with HP Business Technology Optimization Software solutions including HP OpenView Network Node Manager, HP Business Availability Center and HP Operations Manager.
Together the integrated solutions provide our joint customers a single-pane-of-glass approach to troubleshooting to speed problem identification and resolution and assure users experience. In addition, NetScout has integrated its nGenius
Integrated agent into some of the HP Networking chassis switching products to provide visibility into network and application performance at the network edge.



IBM Tivoli  NetScout is an International Business Machine (IBM®), PartnerWorld member, and has been awarded Ready for IBM Tivoli Software validation status to the nGenius service assurance solution for its integration
with IBM Tivoli® NetView®, IBM Tivoli Enterprise
Console® and IBM Tivoli Netcool®/OMNIbus. The integration between NetScout and IBM platforms provides our joint customers with expanded reach of IBMs Event Management Systems by combining
integrated fault management and service delivery assurance into a single integrated console view with a seamless troubleshooting workflow.



IBM Sametime Through the nGenius Voice and Video Manager solution, NetScout integrates with IBM Sametime through an integrated client-side
plug in that provides quality metrics from desktop Sametime applications to measure and assure quality performance of the IBM Sametime® software helping to assure the delivery of unified, real-time communication and collaboration services  from enterprise instant messaging and online meetings to
telephony and video conferencing.

Enhancing shareholder value through sustained growth and
increased profitability based on our continued market leadership is our primary objective. We continue to see a strong level of interest by the market for our products and technology as both enterprise and service provider customers struggle to keep
up with the increasing complexity and volume of service traffic over IP networks. Both of these customer groups are looking for unified approaches that can scale to manage and assure the delivery of critical services over highly distributed IP
networks. We intend to capitalize on this growing market demand regarding user experience in managing service delivery. We will pursue growth by increasing our ongoing business with our established customers, expanding our worldwide coverage and
presence to add new customers, growing and establishing new relationships with technology alliance partners and driving greater value through strategic resellers and go to market partners. Key elements of our strategy include:



Drive technology innovation to extend our market leadership  We are increasing our investment in research and development to expand and
enhance our unified service delivery management capabilities that capitalize on our extensive experience with global enterprise and service provider organizations with very large, high-capacity IP-based networks. We intend to take advantage of our
unique position in both the enterprise and service provider markets to cross-leverage our technology development for both markets to enable greater capabilities for our current and new customers. We will continue to enhance and extend our product
line to meet the increasing challenges of managing a diverse range of services over an increasingly global network environment.



Continued portfolio enhancements  We plan to continue to enhance our products and solutions to address the management challenges
associated with virtualization, cloud computing, service-oriented architectures, VoIP, video, and Telepresence technologies. In addition, we will continue to drive our solutions to help IT organizations address the challenges of complex service
delivery, datacenter consolidation, branch office consolidation and optimization, increasing mobility and the move to a more process-oriented operating environment.



Enabling pervasive visibility  We intend to continue to expand our intelligent data source family to enable our customers to achieve more
visibility in more places across their end-to-end network environment. We are expanding our nGenius InfiniStream appliance family to enable greater levels of storage and processing capacity and to expand our software-based nGenius Virtual Agent and
nGenius Integrated Agent technology to enable wider deployment of our technology within virtual computing environments, network devices and computing platforms. We intend to continue to greatly enhance our ability to scale and to generate real-time
meta data to meet the need for addressing a rapidly growing level of data traffic and an increasingly complex application environment. This includes extending and strengthening our market and technology lead by supporting new and innovative ways to
address the ongoing technology challenges associated with the increasing volume of data traffic and enable scalable support for 40 Gigabit, 100 Gigabit topologies and increasing global deployments of IPv6.



Expand our customer base in both enterprise and service provider markets  It is our intention to substantially grow our presence in both
the enterprise and service provider markets. In the enterprise market, we are growing our installed base footprint to include a broader number of top-tier enterprise customers as well as extending to reach the mid-market enterprise customers. We
intend to increase the use of our products across the IT organization to include new operational groups by expanding their capabilities and value. In the service provider market, we are expanding our presence through new

service provider customer acquisitions as well as expanding our footprint further out into the radio access network, deeper into the core and into new datacenter expansions as cloud-based service
offerings become increasingly strategic to service providers.



Increase market relevance and awareness  To generate increased demand for our products we will continue to promote and position our
technology, products and solutions to both the enterprise and service provider market and drive our vision and strategy of unified service delivery management. In addition, we will continue to drive industry initiatives around managing service
delivery.



Scale and grow our direct sales force  Our direct sales force was structured to specifically and effectively target the enterprise and
service provider markets. Each of these markets has different technology issues, challenges and sales cycles. Consequently, NetScout is very well positioned with a well aligned field organization that will enable us to better meet the needs of these
two diverse markets.



Extend our technology partner alliance ecosystem  We plan to continue to enhance our technology value, product capabilities and customer
relevance through the continued integration of our products into technology partner products. This includes both interoperability integration efforts, as well as embedding our technology into alliance partner products to gain a more pervasive
footprint across both enterprise and service provider networks.



Enhance and extend our training services  We plan to extend and continue to enhance our training services to support our growing customer
base in both the enterprise and service provider markets. We continue to enhance our training with personalized education programs to help our customers deploy and use our products more effectively. We have strengthened our classroom training and
added web-based on-demand training programs. We also continue to enhance our certification programs designed to recognize network professionals who have demonstrated an in-depth understanding of nGenius and Sniffer products and technologies.

We sell our products, support and services through a direct sales force and an indirect reseller and distribution channel. Our sales force uses a high-touch sales model that consists of
face-to-face meetings with customers to understand and identify their unique business challenges and requirements. Our sales teams then translate those requirements into tailored business solutions that allow the customer to maximize the performance
of its infrastructure and service delivery environment. Due to the complexity of the systems and the capital expenditure involved, our sales cycle typically takes three to twelve months. We build strategic relationships with our customers by
continually enhancing our solution to help them address their evolving service delivery management challenges. In addition to providing a comprehensive solution to meet these needs, we continually provide software enhancements to our customers as
part of their maintenance contracts with us. These enhancements are designed to provide additional and ongoing value to our existing customers to promote loyalty and the expansion of their deployment of our products. Existing customer growth is also
driven by the expansion and changes in their networks as they add new infrastructure elements, new users, new locations, new applications and experience increasing service traffic volumes.

Our sales force is organized into four main geographic teams covering sales around the globe: United States, Europe, Asia and the rest of
the world. Revenue from sales outside the United States represented 25%, 27% and 27% of our total revenue in the fiscal years ended March 31, 2012, 2011 and 2010, respectively.Sales to customers outside the United States are primarily
export sales through channel partners, who are generally responsible for distributing our products and providing technical support and service to customers within their territories. Sales arrangements are primarily transacted in United States
dollars. Our reported international revenue does not include any revenue from sales to customers outside the United States that are shipped to our United States-based indirect channel partners. These domestic resellers fulfill customer orders based
upon joint selling efforts in conjunction with our direct sales force and may subsequently ship our products to international

locations; however, we report these shipments as United States revenue since we ship the products to a domestic location. We expect revenue from sales to customers outside the United States to
continue to account for a significant portion of our total revenue in the future.

Our marketing organization drives our
market strategy, product positioning and messaging and produces and manages a variety of programs such as advertising, trade shows, industry events, public and analyst relations, direct mail, seminars, sales promotions, and web marketing to promote
the sale and acceptance of our solutions and to build the NetScout, nGenius and Sniffer brand names in the marketplace. Key elements of our marketing strategy focus on thought leadership, market education, go to market strategies, reputation
management, demand generation, and the acceleration of our strategic selling relationships with local and global resellers, systems integrators, and our technology alliance partners.

We have experienced, and expect to continue to experience,
quarterly variations in our order bookings as a result of a number of factors, including the length of the sales cycle, complexity of customer environments, new product introductions and their market acceptance and seasonal factors affected by
customer projects and typical IT buying cycles. Due to these factors, we historically have experienced stronger bookings during our fiscal third and fourth quarters than in the first and second quarters. Net revenue can also be affected by
unforeseen delays in product shipments due to issues such as on hand inventory, customer shipping instructions and acceptance requirements.

Customer satisfaction is a key driver of NetScouts success. NetScouts MasterCare support programs offer customers
various levels of high quality support services to assist in the deployment and use of our solutions. We have support personnel strategically deployed across the globe to deliver 24/7 toll-free telephone support to our premium MasterCare customers.
Some of the support services, such as on-site support activities, are provided by qualified third party support partners. In addition many of our certified resellers provide Partner Enabled Support to NetScout end-users. This is especially prevalent
in international locations where time zones and language, among other factors, make it more efficient for end-users to have the reseller provide initial support functions. MasterCare support also includes updates to our software and firmware at no
additional charge, if and when such updates are developed and made generally available to our commercial customer base. If ordered, MasterCare support commences upon expiration of the standard warranty for software. For software, which also includes
firmware, the standard warranty commences upon shipment and expires 90 days thereafter. With regard to hardware, the standard warranty commences upon shipment and expires 12 months thereafter. We believe our warranties are consistent with commonly
accepted industry standards.

Our continued success depends significantly on our ability to anticipate and create solutions that will meet emerging customer requirements. We have invested significant financial resources and personnel
into the development of our products and technology. Our continued investment in research and development is crucial to our business and our continued success in the market. We have assembled a team of highly skilled engineers with expertise in
various technologies associated with our business and the technologies being deployed by our customers. These technologies and expertise include networks, protocols, applications, application delivery, WAN technologies, storage and systems
management. As we have expanded our market to also include the wireless service provider sector, we have added a significant number of resources with expertise in service provider networks and technologies including GSM, UMTS, CDMA and LTE
technologies. We plan to continue to expand our product offerings and capabilities in the near future, and, therefore, plan to continue to invest and dedicate significant resources to our research and development activities. In addition, as we
continue to expand our position in the service provider market, we will need to continue to expand our offerings and focused capabilities for these customers. We will continue to make substantial investments in growing our service provider
technology expertise to maintain and grow our market and technology lead for this rapidly growing market opportunity.

We predominantly develop our products internally, with some third party
contracting. We have also acquired developed technology through business acquisitions. To promote industry standards and manifest technology leadership, we participate in and support the activities and recommendations of industry standards bodies,
such as the Internet Engineering Task Force, the 3rd
Generation Partnership Project and we also engage in close and regular dialogue with our key customers and alliance partners. These activities provide early insight into the direction of network and applications performance requirements for current
and emerging technologies.

Our manufacturing operations consist primarily of final product assembly, configuration and testing. We purchase components and subassemblies from suppliers and construct our hardware products in
accordance with NetScout standard specifications. We inspect, test and use process control to ensure the quality and reliability of our products. In February 1998, we obtained ISO 9001 quality systems registration, a certification showing that our
corporate procedures and manufacturing facilities comply with standards for quality assurance and process control. In July 2003, we obtained ISO 9001:2000 quality systems registration, a certification showing that our corporate procedures comply
with standards for continuous improvement and customer satisfaction.

Although we generally use standard parts and components
for our products, which are available from various suppliers, each of the computer network interface cards used in our devices is currently available only from separate single source suppliers. We have generally been able to obtain adequate supplies
of components in a timely manner from current suppliers. While currently we purchase from specific suppliers, we believe that, in most cases, alternate suppliers can be identified if current suppliers are unable to fulfill our needs. Our reliance on
single source suppliers is further described in Item 1A Risk Factors.

We manufacture our products based upon
near-term demand estimates resulting from detailed sales forecasts. Due to the fact that these forecasts have a high degree of variability because of such factors as time of year, overall economic conditions and employee incentives, we maintain
inventory levels in advance of receipt of firm orders to ensure that we have sufficient stock to satisfy all incoming orders.

We sell our products to enterprises and service providers and other organizations with large- and medium-sized high-speed
IP computer networks. Our enterprise customers cover a wide variety of industries, such as financial services, technology, public sector, manufacturing, healthcare, utilities, education and retail. In the telecommunications service provider customer
group we address mobile operators, wireline operators and cable operators. A significant number of our service provider customers are mobile operators.

We configure our products to customer specifications and generally
deliver the final products to the customer within a relatively short time after receipt of the purchase order. These orders also often include service engagements and technical support coverage. Customers may reschedule or cancel orders prior to
shipment with little or no penalty.

Our combined product backlog at March 31, 2012, consisting of unshipped orders and
deferred product revenue, was $13.0 million compared to an immaterial amount at March 31, 2011. Due to the fact that most if not all of our customers have the contractual ability to cancel unshipped orders prior to shipment we cannot
provide assurance that our product backlog at any point in time will ultimately become revenue.

In recent years we implemented reseller specific programs to improve our reach to customers and extend our presence in new markets through
channel partners. We sell through a broad range of channel partners including value added resellers, value added distributors, resellers, and system integrators, for both the enterprise and

service provider markets. Sales to customers outside the United States are primarily export sales through channel partners. These channel partners help us market and sell our products to a broad
array of organizations globally and allow us to better allocate and leverage our field sales force. In addition, and in conjunction with our relationship with Cisco Systems, we have been developing channel programs that we expect will enable us to
use our common channel partners to tap the extended reach and value of the global Cisco reseller channel.

Historically and
currently, we have used indirect distribution channels principally as intermediaries on contractual terms for customers with whom we have no contract. Our sales force meets with end user customers to present NetScout products and solutions, conduct
demonstrations, provide evaluation equipment, recommend detailed product solutions, develop product deployment designs and timelines, and assist in establishing financial and other justification for the proposed solution. During this selling process
a channel partner, who has contracts with both the end customer and NetScout, may be brought in to facilitate the transaction and to provide fulfillment services. In the case of international channel partners, those services usually also include
currency translation and support. In the U.S., fulfillment services are usually limited to invoicing and cash collection. Under this approach, we have limited dependence upon channel partners for the major elements of the selling process. In many
cases, there are multiple channel partners with the required contractual relationships, so dependence on any single channel partner is not significant.

Total revenue from indirect channels represented 54%, 59% and 61% of our total revenue for the fiscal years ended March 31, 2012, 2011 and 2010, respectively.

The service
assurance and performance management market is highly competitive, rapidly evolving, and a fragmented market that has overlapping technologies and competitors. Consequently, there are a number of companies that deliver some elements of our
solutions. There are also larger IT management companies that compete for the same IT budget for managing performance and service delivery with broader less focused offerings.

We believe we compete primarily on the basis of offering a complete and comprehensive service delivery management solution that enables IT organizations to addresses the challenges of managing and
assuring the delivery of critical IT services and applications to predict, identify and resolve the root causes of poor performance of large-scale, distributed IP networking environments. We believe other principal competitive factors in our market
include scalability, ability to address a large number of applications, locations and users, product performance, the ability to easily deploy into existing network environments and the ability to administer and manage the solution. We believe that
our solutions provide superior data and perform better than competitive products as measured by a broad range of metrics including the ability to recognize and track a large number of applications, scalability to support high and increasing levels
of data and network traffic, the ability to look at both data and control plane traffic across an entire network and the ability to provide real-time information about service performance and real-time alerts to emerging service problems. Our
ability to sustain such a competitive advantage depends on our ability to deliver continued technology innovation and adapt to meet the evolving needs of our customers.

We believe we are currently the only vendor providing a comprehensive and end-to-end service delivery management solution that is capable of addressing the needs of both enterprise and service provider
customers and can scale to meet the enormous challenges of todays dynamic service delivery environments. This capability will be the most critical factor in managing mission critical applications in the much anticipated new public cloud IT
paradigm of the future. There have been some acquisitions by large IT management vendors to strengthen their portfolio in the service assurance market and they will continue to invest in this area. We believe that we compete favorably in the service
delivery management and service assurance markets and are the only vendor with a comprehensive service assurance and service delivery management solution with the necessary factors of speed, granularity of critical information and power of analysis
to meet the needs of today and tomorrows dynamic IP-based network operating environments. We have a unified architecture, compared to many vendors

approach in combining disparate technology elements. We believe we have a significant advantage in scalability, comprehensiveness of data gathered, performance, ease-of-use, unified workflows and
the ability to scale our solution to address large global deployments that encompass a large number of applications, services, locations and users.

In the enterprise market, our larger competitors include companies such as Computer Associates and OPNET Technologies, Inc. along with a number of smaller private companies and new market entrants. In
addition, we both compete with and partner with large enterprise management vendors, such as IBM, HP, and EMC, who currently offer generalized performance management solutions but could provide enhanced solutions in the future. In the service
provider market our primary large competitors include Tektronix, a division of Danaher, and JDSU, who provide operational management systems based primarily on monitoring legacy signaling data, along with a number of smaller private companies and
new market entrants. Competitive factors in our industry are further described in Item 1A Risk Factors.

We rely on patent, copyright, trademark, and trade secret laws and contract rights to establish and
maintain our rights in our technology and products. While our intellectual property rights are an important element in our success, our business as a whole does not depend on any one particular patent, trademark, copyright, trade secret, license, or
other intellectual property right.

NetScout uses contracts, statutory laws, domestic and foreign intellectual property
registration processes, and international intellectual property treaties to police and protect its intellectual property portfolio and rights from infringement. From a contractual perspective, NetScout uses license agreements and non-disclosure
agreements to control the use of our intellectual property and protect NetScout trade secrets from unauthorized use and disclosure. In addition to license agreements, NetScout relies on U.S. and international copyright law to protect against
unauthorized copying of software programs, in the U.S. and abroad. NetScout has obtained U.S. and foreign trademark registrations to preserve and protect certain trademarks and trade names. NetScout has also filed and obtained U.S. patents and
international counterparts to protect certain unique NetScout inventions from being unlawfully exploited by other parties. However, there is no assurance that pending or future patent applications will be granted, that we will be able to obtain
patents covering all of our products, or that we will be able to license, if needed, patents from other companies on favorable terms or at all. Our proprietary rights are subject to other risks and uncertainties described under Item 1A
Risk Factors.

As of March 31, 2012, we had a total of 887 employees, 586 of whom were employed in the United States, in the following departments:

Function

Number ofemployees

Sales and marketing

312

Research and development

301

Support services

136

General and administrative

113

Manufacturing

25

887

Item 1A. Risk Factors.

In addition to the other information in this report, the following discussion should be considered carefully in evaluating NetScout and
our business. This Annual Report on Form 10-K contains forward-looking statements under Section 21E of the Exchange Act and other federal securities laws. These statements relate to future events

or our future financial performance and are identified by terminology such as may, will, could, should, expects, plans,
intends, seeks, anticipates, believes, estimates, potential or continue, or the negative of such terms or other comparable terminology. These statements are only
predictions. You should not place undue reliance on these forward-looking statements. Actual events or results may differ materially. Factors that may cause such differences include, but are not limited to, the factors discussed below and in our
other filings with the SEC. These factors may cause our actual results to differ materially from any forward-looking statement.

Our operating results and financial condition have varied in the past and may in the future vary significantly depending on a number of
factors. Except for the historical information in this report, the matters contained in this report include forward-looking statements that involve risk and uncertainties. The following factors are among many that could cause actual results to
differ materially from those contained in or implied by forward-looking statements made in this report. These statements involve the risks and uncertainties identified below as well as additional risks and uncertainties that are not yet identified
or that we currently think are immaterial may also impact our business operations. Such factors are among many that may have a material adverse impact upon our business, results of operations and financial condition.

Our quarterly revenue and operating results may fluctuate. Our quarterly revenue and operating results are difficult to predict
and may fluctuate significantly from quarter to quarter. Our quarterly revenue may fluctuate as a result of a variety of factors, many of which may be outside of our control, including the following:



technology spending by current and potential customers;



uneven demand for service delivery and application performance management solutions;



the timing and size of orders from customers, especially in light of our lengthy sales cycle;



the timing and market acceptance of new products or product enhancements by us or our competitors;



changes in the distribution channels through which our products are sold;



the timing of hiring sales personnel and the speed at which such personnel become productive;

changes in the number and size of our competitors and changes in the prices of competitors products;



the timing and impact of security-related threats and outbreaks (e.g., worms and viruses);



customer ability to implement our products;



changes in foreign currency exchange rates;



attrition of key employees; and



economic slowdowns and the occurrence of unforeseeable events, such as terrorist attacks, which contribute to such slowdowns.

Most of our expenses, such as employee compensation, benefits and rent, are relatively fixed in the short
term. Moreover, our expense levels are based, in part, on our expectations regarding future revenue levels. As a result, if revenue for a particular quarter is below our expectations, we may not be able to reduce operating expenses proportionately
for that quarter, and, therefore, this revenue shortfall would have a disproportionately negative impact on our operating results for that quarter.

If we fail to introduce new products or enhance our existing products to keep up with rapid technological change, demand for our products may decline. The market for application and network
performance management and service assurance solutions is characterized by rapid changes in technology, evolving industry standards, changes in customer requirements and frequent product introductions and enhancements. Our success is dependent upon
our ability to meet our customers needs, which are driven by

changes in computer networking technologies, new application technologies and the emergence of new industry standards. In addition, new technologies may shorten the life cycle for our products or
could render our existing or planned products obsolete. If we are unable to develop and introduce new network and application performance management and service assurance products or enhancements to existing products in a timely and successful
manner, this inability could have a material and adverse impact on our business, operating results and financial condition.

We have introduced and intend to continue to introduce new products. If the introduction of these products is significantly delayed or if
we are unsuccessful in bringing these products to market, our business, operating results and financial condition could be materially and adversely impacted.

We face significant competition from other technology companies. The market for application and network performance management and service assurance solutions is highly competitive. The market
is fragmented with a number of vendors offering elements of our total solution. We believe customers make service management system purchasing decisions based primarily upon the following factors:



product performance, functionality and price;



name and reputation of vendor;



distribution strength; and



alliances with industry partners.

We compete with a growing number of smaller providers of application performance management solutions and providers of portable network traffic analyzers and probes. In addition, leading network equipment
and application technology vendors offer their own limited, generalized management solutions, including products which they license from other competitors. Some of our current and potential competitors have longer operating histories, greater name
recognition and substantially greater financial, management, marketing, service, support, technical, distribution and other resources than we do. Further, in recent years some of our competitors have been acquired by larger companies that are
seeking to enter or expand in the markets in which we operate. Therefore, given their larger size and greater resources our competitors may be able to respond more effectively than we can to new or changing opportunities, technologies, standards and
customer requirements.

As a result of these and other factors, we may not be able to compete effectively with our current or
future competitors, which could have a material and adverse impact on our business, operating results and financial condition.

If our products contain errors, they may be costly to correct, revenue may be delayed, we could be sued and our reputation could be
harmed. Despite testing by our customers and us, errors may be found in our products after commencement of commercial shipments. If errors are discovered, we may not be able to correct them in a timely manner or at all. In addition, we may need
to make significant expenditures to eliminate errors and failures. Errors and failures in our products could result in loss of or delay in market acceptance of our products and could damage our reputation. If one or more of our products fail, a
customer may assert warranty and other claims for substantial damages against us. The occurrence or discovery of these types of errors or failures could have a material and adverse impact on our business, operating results and financial condition.

Increased customer demands on our technical support services may adversely affect our relationships with our customers and
our financial results. We offer technical support services with many of our products. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for support services. We also may be unable to modify the
format of our support services to compete with changes in support services provided by competitors. Further customer demand for these services, without corresponding revenues, could have a material and adverse impact on our financial condition and
results of operations.

We must hire and retain skilled personnel. Our success depends in large part upon our
ability to attract, train, motivate and retain highly skilled employees, particularly executives, sales and marketing personnel, software engineers, and technical support personnel. If we are unable to attract and retain the highly skilled technical
personnel that are integral to our sales, marketing, product development and technical support teams, the rate at which we can generate sales and develop new products or product enhancements may be limited. This inability could have a material and
adverse impact on our business, operating results and financial condition. In addition, loss of key personnel could adversely impact our business. Our future success depends to a significant degree on the skills, experience and efforts of Anil
Singhal, our President, Chief Executive Officer, and co-founder, and our other executive officers and senior managers to work effectively as a team. The loss of one or more of our key personnel could have a material and adverse impact on our
business, operating results and financial condition.

The success of our business depends, in part, on the continued
growth in the market for and the continued commercial demand for service delivery service assurance solutions focused on the performance monitoring and management of applications and networks. We derive all of our revenue from the sale of
products and services that are designed to allow our customers to assure the delivery of services through the management of the performance of applications across IP networks. Therefore, we must be able to predict the appropriate features and prices
for future products to address the market, the optimal distribution strategy and the future changes to the competitive environment. In order for us to be successful, our potential customers must recognize the value of more sophisticated application
management solutions, decide to invest in the management of their networked applications and, in particular, adopt our management solutions. Any failure of this market to continue to be viable would materially and adversely impact our business,
operating results and financial condition. Additionally, businesses may choose to outsource the operations and management of their networks to managed service providers. Our business may depend on our ability to continue to develop relationships
with these service providers and successfully market our products to them.

We may not successfully complete acquisitions
or integrate acquisitions we do make, which could impair our ability to compete and could harm our operating results. We may need to acquire complementary businesses, products or technologies to remain competitive or expand our business. We
actively investigate and evaluate potential acquisitions of complementary businesses, products and technologies in the ordinary course of business. We may compete for acquisition opportunities with entities having significantly greater resources
than us. As a result, we may not succeed in acquiring some or all businesses, products or technologies that we seek to acquire. Our inability to effectively consummate acquisitions on favorable terms could significantly impact our ability to compete
effectively in our targeted markets and could negatively affect our results of operations.

Acquisitions that we do complete
could adversely impact our business. The potential adverse consequences from acquisitions include:



the potentially dilutive issuance of common stock or other equity instruments;



the incurrence of debt and amortization expenses related to goodwill and acquired intangible assets;



the potentially costly and disruptive impact of assuming unfavorable pre-existing contractual relationships of acquired companies that we would not
have otherwise entered into and potentially exiting or modifying such relationships;



the potential litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of, an acquisition including
claims from terminated employees, customers, third parties or enforcement actions by various regulators;



the incurrence of significant costs and expenses; and



the potentially negative impact of poor performance of an acquisition on our earnings per share.

Acquisition transactions also involve numerous business risks. These risks from acquisitions include:



difficulties in assimilating the acquired operations, technologies, personnel and products;

use of cash to pay for acquisitions may limit other potential uses of our cash, including stock repurchases and retirement of outstanding indebtedness;



substantial accounting charges for restructuring and related expenses, write-off of in-process research and development, impairment of goodwill,
amortization or impairment of intangible assets and share-based compensation expense;



the potential disruption of our business;



the potential loss of key employees, customers, distributors or suppliers;



the inability to generate sufficient revenue to offset acquisition or investment costs; and



the potential for delays in customer purchases due to uncertainty and the inability to maintain relationships with customers of the acquired
businesses.

Failure to manage growth properly and to implement enhanced automated systems could
adversely impact our business. The growth in size and complexity of our business and our customer base has been and will continue to be a challenge to our management and operations. To manage further growth effectively, we must integrate new
personnel and manage expanded operations. If we are unable to manage our growth effectively, our costs, the quality of our products, the effectiveness of our sales organization, attraction and retention of key personnel, our business, and our
operating results and financial condition could be materially and adversely impacted. Any disruptions or ineffectiveness relating to our systems implementations and enhancements could adversely affect our ability to process customer orders, ship
products, provide services and support to our customers, bill and track our customers, fulfill contractual obligations, and otherwise run our business.

Our success depends, in part, on our ability to manage and leverage our distribution channels. Sales to our distribution channels, which include resellers, original equipment manufacturers,
distributors, systems integrators and service providers, accounted for 54%, 59%, and 61% of our total revenue for the fiscal years ended March 31, 2012, 2011 and 2010, respectively. To increase our sales we need to continue to enhance our
indirect sales efforts, to continue to manage and expand these existing distribution channels and to develop new indirect distribution channels. Our channel partners have no obligation to purchase any products from us. In addition, they could
internally develop products that compete with our solutions or partner with our competitors or bundle or resell competitors solutions, possibly at lower prices. The potential inability to develop new relationships or to expand and manage our
existing relationships with partners, the potential inability or unwillingness of our partners to market and sell our products effectively or the loss of existing partnerships could have a material and adverse impact on our business, operating
results and financial condition.

Our success depends, in part, on our ability to expand and manage our international
operations. Sales to customers outside the United States accounted for 25%, 27%, and 27% of our total revenue for the fiscal years ended March 31, 2012, 2011 and 2010, respectively. We currently expect international revenue to continue to
account for a significant percentage of total revenue in the future. We believe that we must continue to expand our international sales activities in order to be successful. Our international sales growth will be limited if we are unable to:



expand international distribution channels;



hire additional overseas sales personnel;



adapt products for local markets and comply with foreign regulations; and

The major geographic areas outside of the United States in which we manage our business are
Europe, Asia and the rest of the world. Our international operations, including our operations in the United Kingdom, mainland Europe, India, Asia-Pacific and other regions are generally subject to a number of risks, including:



failure of local laws to provide the same degree of protection that the laws in the United States provide against infringement of our intellectual
property;



protectionist laws and business practices that favor local competitors;



dependence on local indirect channel partners;



conflicting and changing governmental laws and regulations;



longer sales cycles;



greater difficulty in collecting accounts receivable; and



foreign currency exchange rate fluctuations and political and economic instability.

If we violate the Foreign Corrupt Practices Act our business could be harmed. We earn a significant portion of our total revenues
from international sales. As a result, we are subject to the Foreign Corrupt Practices Act (FCPA), which generally prohibits U.S. companies and their intermediaries from making corrupt payments to foreign officials for the purpose of
obtaining or keeping business or otherwise obtaining favorable treatment, and requires companies to maintain adequate record-keeping and internal accounting practices to accurately reflect the transactions of the company. The FCPA applies to
companies, individual directors, officers, employees and agents. Under the FCPA, U.S. companies may be held liable for actions taken by strategic or local partners or representatives. In addition, the government may seek to hold us liable for
successor liability FCPA violations committed by companies which we acquire. If we or our intermediaries fail to comply with the requirements of the FCPA, governmental authorities in the U.S. could seek to impose civil and/or criminal penalties,
which could have a material adverse effect on our business, results of operations, financial conditions and cash flows.

Our future growth depends on our ability to maintain and periodically expand our sales force. We must maintain and periodically
increase the size of our sales force in order to increase our direct sales and support our indirect sales channels. Because our products are very technical, sales people require a comparatively long period of time to become productive, typically
three to twelve months. This lag in productivity, as well as the challenge of attracting qualified candidates, may make it difficult to meet our sales force growth targets. Further, we may not generate sufficient sales to offset the increased
expense resulting from growing our sales force. If we are unable to maintain and periodically expand our sales capability, our business, operating results and financial condition could be materially and adversely impacted.

If we fail to develop our brand cost-effectively, our business may suffer. We believe that developing and maintaining awareness of
our brand in a cost-effective manner is important to achieving widespread acceptance of our existing and future products and services and is an important element in attracting new customers. Furthermore, we believe that the importance of brand
recognition will increase as competition in our market develops. Successful promotion of our brand will depend largely on the effectiveness of our marketing efforts and on our ability to provide reliable and useful products and services at
competitive prices. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incurred in building our brand. If we fail to promote and maintain our brand successfully, or
incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may fail to attract enough new customers or retain our existing customers to the extent necessary to realize a sufficient return on our brand-building
efforts, and this could have a material and adverse impact on our financial condition and results of operations.

The
current economic and geopolitical environment may impact some specific industries into which we sell. Many of our customers are concentrated in a small number of industries, including financial services, public sector, healthcare, and the
service provider market segment. Certain industries may be more acutely

affected by economic, geopolitical and other factors than other sectors. To the extent that one or more of the sectors in which our customer base operates is adversely impacted, whether as a
result of general conditions affecting all sectors or as a result of conditions affecting only those particular sectors, our business, financial condition and results of operations could be materially and adversely impacted.

Uncertain conditions in the global economy and constraints in the global credit market may adversely affect our revenue and results of
operations. Disruptions in the global economy and constraints in the global credit market may cause some of our customers to reduce, delay, or cancel spending on capital and technology projects, resulting in reduced spending with us. While some
industry sectors such as government and telecommunications may be less susceptible to the effects of an economic slowdown, our enterprise customers may be adversely affected, especially in financial services and consumer industries. Continued
volatility in, or disruption of European financial markets could limit customers ability to obtain adequate financing to maintain operations and result in a decrease in sales volume that could have a negative impact on our results of
operations. Further, competitors may respond to economic conditions by lowering their prices, which could put pressure on our pricing. We could also experience lower than anticipated order levels, cancellations of orders in backlog, defaults on
outstanding accounts receivable and extended payment or delivery terms.

We may fail to secure necessary additional
financing. We may require significant capital resources to expand our business and remain competitive in the rapidly changing application performance management and service assurance industry. We may need to invest in our operations as well
as acquire complementary businesses, products or technologies. Our future success may depend in part on our ability to obtain additional financing to support our continued growth and operations. If our existing sources of liquidity are insufficient
to satisfy our operating requirements, we may need to seek to raise capital by:



issuing additional common stock or other equity instruments;



acquiring additional bank debt;



issuing debt securities; or



obtaining lease financings.

However, we may not be able to obtain additional capital when we want or need it, or capital may not be available on satisfactory terms. Furthermore, any additional capital may have terms and conditions
that adversely affect our business, such as new financial or operating covenants, or that may result in additional dilution to our stockholders.

We have a significant amount of debt. If we fail to maintain sufficient cash as our debt becomes due or are unable to renew our revolving credit facility prior to its expiration, this may
adversely affect our business, financial condition, and operating results. At March 31, 2012, we had outstanding debt of $62.0 million under our $250 million revolving credit facility. The credit facility matures in November 2016. We
expect that existing cash, cash equivalents, marketable securities, cash provided from operations and our revolving credit facility will be sufficient to meet ongoing cash requirements. However, failure to generate sufficient cash as our debt
becomes due or to renew our revolving credit facility prior to its expiration could adversely affect our business, financial condition, operating results and cash flows.

A portion of our marketable securities is invested in auction rate securities. At March 31, 2012 we had $1.5 million of our long-term marketable securities portfolio invested in auction rate
securities. These securities are AAA rated and collateralized by student loans with underlying support by the federal government through the Federal Family Education Loan Program (FFELP) and by monoline insurance companies. Beginning in February
2008 and continuing through March 31, 2012, the majority of auction rate securities in the marketplace, including all of the auction rate securities that we hold in our portfolio, experienced failed auctions. As a result, we will not be able to
liquidate these holdings until a future auction is successful, the issuer redeems the outstanding securities, a buyer is found outside the auction process which may require us to take a significant discount from the face value of the securities, the
securities mature, or there is a default requiring immediate

repayment from the issuer. In the future, should we determine that the decline in value of these auction rate securities are other than temporary, we would recognize a loss in our consolidated
statement of operations, which could be material. Because these securities are currently illiquid, we are unable to access this cash in the short term. If this illiquidity in the auction rate security market continues we may not be able to use these
funds, if needed, to make debt payments, and should we need to access these assets for operations, this could have a negative effect on our business, financial condition and operating results of our company.

The price of our common stock may decrease due to market volatility. The market price of our common stock has been volatile and
may continue to fluctuate in response to a number of factors, some of which are beyond our control. Trading activity of our stock has historically been relatively thin, in part as a result of officers and directors and institutional shareholders
holding a significant percentage of our stock. In addition, the market prices of securities of technology companies have been volatile and have experienced fluctuations that often have been unrelated or disproportionate to the operating performance
of these companies. Also, broad market fluctuations could adversely impact the market price of our common stock, which in turn could cause impairment of goodwill that could materially and adversely impact our financial condition and results of
operations.

It is not uncommon when the market price of a stock has been volatile for holders of that stock to institute
securities class action litigation against the company that issues that stock. If any of our stockholders brought such a lawsuit against us, even if the lawsuit is without merit, we could incur substantial costs defending the lawsuit beyond any
insurance coverage which we may have for such risks. Such a lawsuit could also divert the time and attention of our management.

Our effective tax rate may increase or fluctuate, which could increase our income tax expense and reduce our net income. Our
effective tax rate could be adversely affected by several factors, many of which are outside of our control, including:



Changes in the relative proportions of revenues and income before taxes in the various jurisdictions in which we operate that have differing statutory
tax rates;



Changing tax laws, regulations, and interpretations in multiple jurisdictions in which we operate as well as the requirements of certain tax rulings;



Changes in accounting and tax treatment of share-based compensation;



The valuation of generated and acquired deferred tax assets and the related valuation allowance on these assets;



The tax effects of purchase accounting for acquisitions and restructuring charges that may cause fluctuations between reporting periods; and



Tax assessments or any related tax interest or penalties that could significantly affect our income tax expense for the period in which the settlements
take place.

An adverse change in our effective tax rate could have a material and adverse effect on our
financial condition and results of operations.

Our estimates and judgments related to critical accounting policies could
be inaccurate. We consider accounting policies related to marketable securities, revenue recognition, valuation of goodwill and acquired intangible assets and share-based compensation to be critical in fully understanding and evaluating our
financial results. Management makes accounting judgments and estimates related to these policies. Our business, operating results and financial condition could be materially and adversely impacted in future periods if our accounting judgments and
estimates related to these critical accounting policies prove to be inaccurate.

Our reliance on sole source suppliers could adversely impact our business. Specific
components that are necessary for the hardware assembly of our instruments are obtained from separate sole source suppliers or a limited group of suppliers. These components include our network interface cards. Our reliance on sole or limited
suppliers involves several risks, including a potential inability to obtain an adequate supply of required components and the inability to exercise control over pricing, quality and timely delivery of components. We do not generally maintain
long-term agreements with any of our suppliers or have on hand large volumes of inventory. Our inability to obtain adequate deliveries or the occurrence of any other circumstance that would require us to seek alternative sources of these components
would impact our ability to ship our products on a timely basis. This could damage relationships with our current and prospective customers, cause shortfalls in expected revenue, and could materially and adversely impact our business, operating
results and financial condition.

Necessary licenses for third-party technology may not be available to us or may be very
expensive. We currently and will in the future license technology from third parties that we use to produce or embed in our products. While we have generally been able to license required third-party technology to date, future required
third-party licenses may not be available to us on commercially reasonable terms or at all. Third parties who hold exclusive rights to technology that we seek to license may include our competitors. If we are unable to obtain any necessary
third-party licenses, we would be required to redesign or product or obtain substitute technology, which may perform less well, be of lower quality or be more costly.

Our success depends on our ability to protect our intellectual property rights. Our business is heavily dependent on our intellectual property. We rely upon a combination of patent, copyright,
trademark and trade secret laws and registrations and non-disclosure and other contractual and license arrangements to protect our intellectual property rights. The reverse engineering, unauthorized copying, or other misappropriation of our
intellectual property could enable third parties to benefit from our technology without compensating us. Legal proceedings to enforce our intellectual property rights could be burdensome and expensive and could involve a high degree of uncertainty.
In addition, legal proceedings may divert managements attention from growing our business. There can be no assurance that the steps we have taken to protect our intellectual property rights will be adequate to deter misappropriation of
proprietary information, or that we will be able to detect unauthorized use by third parties and take appropriate steps to enforce our intellectual property rights. Further, we also license software from third parties for use as part of our
products, and if any of these licenses were to terminate, we might experience delays in product shipment until we develop or license alternative software.

Others may claim that we infringe on their intellectual property rights. From time to time we may be subject to claims by others that our products infringe on their intellectual property rights,
patents, copyrights or trademarks. These claims, whether or not valid, could require us to spend significant sums in litigation, pay damages or royalties, delay product shipments, reengineer our products, rename our products and rebuild name
recognition or acquire licenses to such third-party intellectual property. We may not be able to secure any required licenses on commercially reasonable terms or secure them at all. We expect that these claims could become more frequent as more
companies enter the market for network and application infrastructure performance management solutions. Any of these claims or resulting events could have a material and adverse impact on our business, operating results and financial condition.

The effectiveness of our disclosure and internal controls may be limited. Our disclosure controls and procedures and
internal control over financial reporting may not prevent all material errors and intentional misrepresentations. Any system of internal control can only provide reasonable assurance that all control objectives are met. Some of the potential risks
involved could include, but are not limited to, management judgments, simple errors or mistakes and willful misconduct regarding controls or misinterpretation. Under Section 404 of the Sarbanes-Oxley Act we are required to evaluate and
determine the effectiveness of our internal control over financial reporting. Compliance with this legislation requires managements attention and expense. Managements assessment of our internal control over financial reporting may or may
not identify weaknesses that need to be addressed in our internal control system. If we are unable to conclude that our internal

control over financial reporting is effective, investors could lose confidence in our reported financial information which could have an adverse effect on the market price of our stock or impact
our borrowing ability. In addition, changes in operating conditions and changes in compliance with policies and procedures currently in place may result in inadequate internal control over financial reporting in the future.

We or our suppliers may be impacted by new regulations related to climate change. We or our suppliers may become subject to new
laws enacted with regards to climate change. In the event that new laws are enacted or current laws are modified in countries in which we or our suppliers operate, our flow of product may be impacted which could have a material and adverse effect on
our financial condition and results of operations.

Uncertainties of regulation of the Internet and data traveling over the
Internet could have a material and adverse impact on our financial condition and results of operations. Currently, few laws or regulations apply directly to access to or commerce on the Internet. We could be materially adversely affected by
regulation of the Internet and Internet commerce in any country where we operate. Such regulations could include matters such as net neutrality. Further, governments may regulate or restrict the sales, licensing, distribution, and export or import
of certain technologies to certain countries. The adoption of regulation of the Internet and Internet commerce could decrease demand for our products and, at the same time, increase the cost of selling our products, which could have a material and
adverse effect on our financial condition and results of operations. In addition, the enactment of new federal, state, or foreign data privacy laws and regulations could cause customers not to be able to take advantage of all the features or
capabilities of our products which in turn could reduce demand for certain of our products.

A security breach or cyber
attack of our networks could interrupt our operations or harm our reputation. Although we believe we have sufficient controls and security measures in place to prevent such attacks, our systems may still be vulnerable to data theft, computer
viruses, programming errors, attacks by third parties or similar problems. If we were to experience a security breach or cyber attack, we could be required to incur substantial costs and liabilities, including but not limited to, expenses
attributable to rectifying the security breach or cyber attack including the cost of repairing any damage to our systems, liability for stolen assets or information, lost revenue and income resulting from any system downtime, increased costs for
cyber security protection, and damage to our reputation causing customers and possibly investors to lose confidence in us. Similarly, an actual or perceived breach of our customers network security allowing access to our customers data
centers or other parts of their IT environments, regardless of whether the breach is attributable to our products, may cause contractual disputes and could require significant expenditures of our capital and diversion of our resources from
development efforts.

We currently lease approximately 175,000 square feet of space in an office building in
Westford, Massachusetts, for our headquarters. The current lease will expire in September 2023, and we have an option to extend the lease for two additional five-year terms. We lease office space in twenty eight international cities throughout the
world for our sales and support personnel, as well as 72,742 square feet of space in San Jose, California. We lease 34,021 square feet of office space for our engineering and support personnel in India. We believe that our existing facilities are
adequate to meet our foreseeable requirements or that suitable additional or substitute space will be available on commercially reasonable terms.

In March 2012, NetScout uncovered and investigated, and in April 2012, disclosed to the U.S. Department of Justice and the California
State Attorney General potential violations of federal and California state anti-trust laws. The potential violations involve a former employee and one or more third parties in connection with sales to state governmental agencies during fiscal
year 2012. NetScout believes it did not benefit from any of the transactions uncovered and that the amounts involved are not believed at this time to be material. It is possible that the U.S. Department of Justice and/or the California State
Attorney General may conduct an investigation into the matter. NetScout is cooperating fully and intends to provide any requested information if asked. In general, the federal and state agencies have the authority to seek fines and other
remedies for anti-trust violations; however, no charges or proceedings have been initiated by any governmental agency against NetScout. We determined that it is probable that there will be amounts due, those amounts are reasonably estimable and have
been accrued as an immaterial liability as of March 31, 2012.

We completed our initial public offering on August 17, 1999. Since that time, our common stock has traded on the Nasdaq Global Market and its predecessor, the Nasdaq National Market, under the symbol
NTCT. The following table sets forth, for the periods indicated, the high and low intraday sales prices for our common stock. Such information reflects inter-dealer price, without retail mark-up, markdown or commission and may not represent actual
transactions.

This performance graph shall not be deemed filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be
incorporated by reference into any filing of NetScout under the Exchange Act or the Securities Act of 1933, as amended.

The
Stock Performance Graph set forth below compares the yearly change in the cumulative total stockholder return on our common stock during the five year period from March 31, 2007 through March 31, 2012, with the cumulative total return of
the Nasdaq Composite Index and the Nasdaq Computer & Data Processing Index. The comparison assumes $100 was invested on March 31, 2007 in our common stock or in the Nasdaq Composite Index and the Nasdaq Computer & Data
Processing Index and assumes reinvestment of dividends, if any.

The stock price performance shown on the graph below is not
necessarily indicative of future price performance. Information used in the graph was obtained from Zacks Investment Research, Inc., a source believed to be reliable, but NetScout is not responsible for any errors or omissions in such information.

In fiscal years 2012 and 2011, we did not declare any cash dividends and do not anticipate declaring cash dividends in the foreseeable future. In addition, the terms of our credit facility limit our
ability to pay cash dividends on our capital stock. It is our intention to retain all future earnings for reinvestment to fund our expansion and growth. Any future cash dividend declaration will be at the discretion of our Board of Directors and
will depend upon, among other things, our future earnings, general financial conditions, capital requirements, existing bank covenants and general business conditions.

The following table provides information about purchases we made during the quarter ended March 31, 2012 of equity securities that
are registered by us pursuant to Section 12 of the Exchange Act (Dollars in millions, except per share data:)

Total Numberof SharesPurchased(1)

Average PricePaid per Share

Total Number ofShares Purchasedas Part of PubliclyAnnounced
Plansor Programs

Maximum Numberof Shares That MayYet be PurchasedUnder the Plans
orPrograms

1/1/2012 thru 1/31/2012

5,700

$

17.92

0

2,243,206

2/1/2012 thru 2/29/2012

121,374

20.94

0

2,243,206

3/1/2012 thru 3/31/2012

765

20.98

0

2,243,206

Total

127,839

$

20.77

0

2,243,206

(1)

We purchased an aggregate of 127,839 shares transferred to us from employees in satisfaction of minimum tax withholding obligations associated with the vesting of
restricted stock during the period. These purchases reflected in the table do not reduce the maximum number of shares that may be purchased under the plan.

During the fourth quarter of fiscal year 2012, we did not repurchase any shares of our outstanding common stock pursuant to our open market stock repurchase program further described in Note 13 to the
attached consolidated financial statements.

The selected consolidated financial data set forth below should be read in conjunction with our audited consolidated financial statements and notes thereto and Managements Discussion and
Analysis of Financial Condition and Results of Operations included under Item 7 of this Annual Report on Form 10-K. The consolidated statement of operations data for the fiscal years ended March 31, 2012, 2011 and 2010 and the
consolidated balance sheet data as of March 31, 2012 and 2011 are derived from audited consolidated financial statements included under Item 8 of this Annual Report on Form 10-K. The consolidated statement of operations data for the fiscal
years ended March 31, 2009 and 2008 and the consolidated balance sheet data as of March 31, 2010, 2009 and 2008 have been derived from audited consolidated financial statements of NetScout that do not appear in this Annual Report on Form
10-K. The historical results are not necessarily indicative of the operating results to be expected in the future.

Year Ended March 31,

2012(1)

2011

2010

2009

2008(2)

(In thousands, except per share data)

Statement of Operations Data:

Revenue:

Product

$

168,141

$

159,948

$

142,113

$

154,161

$

106,182

Service

140,538

130,592

118,229

113,443

62,774

Total revenue

308,679

290,540

260,342

267,604

168,956

Cost of revenue:

Product

39,271

38,175

35,564

43,315

33,965

Service

26,401

23,186

20,500

20,824

13,721

Total cost of revenue

65,672

61,361

56,064

64,139

47,686

Gross profit

243,007

229,179

204,278

203,465

121,270

Operating expenses:

Research and development

49,478

40,628

36,650

40,189

30,000

Sales and marketing

109,624

105,271

99,059

98,818

69,652

General and administrative

27,488

23,308

20,609

26,118

26,149

Amortization of acquired intangible assets

2,131

1,907

2,057

1,962

811

Restructuring charges

603









Total operating expenses

189,324

171,114

158,375

167,087

126,612

Income (loss) from operations

53,683

58,065

45,903

36,378

(5,342

)

Interest and other expense, net

(2,765

)

(1,772

)

(2,832

)

(5,337

)

(1,207

)

Income (loss) before income tax expenses (benefit)

50,918

56,293

43,071

31,041

(6,549

)

Income tax expense (benefit)

18,490

19,028

15,154

10,993

(4,461

)

Net income (loss)

$

32,428

$

37,265

$

27,917

$

20,048

($

2,088

)

Basic net income (loss) per share

$

0.77

$

0.89

$

0.69

$

0.51

($

0.06

)

Diluted net income (loss) per share

$

0.76

$

0.87

$

0.67

$

0.49

($

0.06

)

Weighted average common shares outstanding used in computing:

Net income (loss) per sharebasic

42,035

42,059

40,691

39,351

34,913

Net income (loss) per sharediluted

42,750

42,973

41,915

40,925

34,913

(1)

During the year ended March 31, 2012, NetScout completed the acquisitions of Psytechnics, Replay and Simena for approximately $47.3 million.

(2)

On November 1, 2007, NetScout completed its acquisition of Network General Central Corporation (Network General) for aggregate consideration of approximately $212
million.

During the year ended March 31, 2012, NetScout completed the acquisitions of Psytechnics, Replay and Simena for approximately $47.3 million, including $616
thousand in cash.

(2)

On November 1, 2007, NetScout completed its acquisition of Network General for aggregate consideration of approximately $212 million, including $53 million in
cash.

Item 7. Managements Discussion and Analysis of Financial Condition and Results
of Operations

The following information should be read in conjunction with the audited consolidated financial
information and the notes thereto included in this Annual Report on Form 10-K. In addition to historical information, the following discussion and other parts of this Annual Report contain forward-looking statements that involve risks and
uncertainties. You should not place undue reliance on these forward-looking statements. Actual events or results may differ materially due to competitive factors and other factors discussed in Item 1A. Risk Factors and
elsewhere in this Annual Report. These factors may cause our actual results to differ materially from any forward-looking statement.

NetScout was founded in 1984 and is headquartered in Westford, Massachusetts. We design, develop, manufacture, market, sell and support
market leading unified service delivery management, service assurance and application performance management solutions focused on assuring service delivery for the worlds largest, most demanding and complex IP based service delivery
environments. We manufacture and market these products in integrated hardware and software solutions that are used by commercial enterprises, large governmental agencies and telecommunication service providers worldwide. We have a single operating
segment and substantially all of our identifiable assets are located in the United States.

Our operating results are
influenced by a number of factors, including, but not limited to, the mix and quantity of products and services sold, pricing, costs of materials used in our products, growth in employee related costs, including commissions, and the expansion of our
operations. Factors that affect our ability to maximize our operating results include, but are not limited to, our ability to introduce and enhance existing products, the marketplace acceptance of those new or enhanced products, continued expansion
into international markets, development of strategic partnerships, competition, successful acquisition integration efforts, our ability to achieve significant expense reductions and make structural improvements and current economic conditions.

On April 1, 2011, we completed the acquisition of Psytechnics, Ltd (Psytechnics), a provider of IP voice, video and
telepresence technologies that proactively assures the user experience for unified communications services. Psytechnics technology strengthens NetScouts unified service delivery management strategy by providing more comprehensive
management of the quality of IP voice, video and telepresence service delivery along with all other application and data services. NetScout paid $17.0 million for the acquisition of Psytechnics.

On October 3, 2011, we completed the acquisition of Fox Replay BV (Replay), a leading provider of user session reconstruction and
replay technology that enables organizations to perform forensic analysis of end-user actions in support of cyberintelligence activities, information assurance, lawful intercept and general security

practices. Replay adds critical technology and expertise that we expect will provide an important element of our unified service delivery management product strategy to address growing
cybersecurity concerns in our target markets. NetScout paid $20.2 million for the acquisition of Replay.

On November 18,
2011, we completed the acquisition of Simena, LLC (Simena), an established provider of high performance, low-latency IP packet flow-based network monitoring switching technology that enables IT organizations and service providers to aggregate,
filter and control network traffic for data, voice, and video monitoring and cybersecurity deployments. We expect that Simenas technology will further strengthen NetScouts unified service delivery management strategy by extending
visibility capabilities. The technology should enable fine-grained packet-flow control for monitoring environments to better leverage critical network monitoring points. NetScout paid $10.1 million in cash for the acquisition of Simena and an
estimated fair value at the time of acquisition for additional contingent consideration of $8.0 million to be paid in the future. At March 31, 2012, the fair value of the contingent consideration was $8.2 million.

The three acquisitions described above have brought key new technologies and capabilities to our solution offering that greatly enhance
our Unified Service Delivery Management (USDM) strategy, enabling further market differentiation of our solution offerings and will accelerate our customers time to value. Each of these acquisitions complement our focused packet-flow strategy
and will enable us to continue to build a leading solution set that meets customer requirements in streamlining their network monitoring architecture, enhances the usefulness of our solution in cybersecurity implementations and addresses the growing
need to support Unified Communications (UC) services along with business data applications. All three of these acquisitions have been completed and are fully integrated into the organization.

We made significant enhancements to our service provider solution during our fiscal year ended March 31, 2012 and won new business
as a result. Our patent-pending Adaptive Session Intelligence (ASI) technology is giving us an edge over competition providing superior real-time analytics, scalability and price performance. The large service provider carriers and an increasing
number of mid-size carriers are directing their capital spending dollars toward our solution because we help them better manage their overall capital spending and deal with the ongoing hyper-growth of data traffic. We expect to continue to gain
market share in IP-based service assurance for wireless carriers globally.

We also made major enhancements to our USDM
platform, prompting our service provider customers to expand their USDM deployments, moving beyond post-event session trace, subscriber-by-subscriber measurements to real-time, tops down user experience by region, mobile device type and service.

In addition to wireless carriers, cable companies have become a significant component of our telecommunications sales. As
with wireless carriers, our products are now being selected to provide service assurance for cable providers customer facing networks as they continue to move to IP based service delivery.

In enterprise sales worldwide, we saw year-over-year growth which has been supported by our USDM capabilities. This past year we released
new functionality for Unified Communications, Application Performance Management and, with the addition of our Packet Flow Switch products, we are enabling our customers to leverage their existing investment in our products into new functional
areas.

In Unified Communications, we integrated the technology we acquired from Psytechnics with our Infinistream data
collectors into a product called nGenius Voice | Video Manager, a performance analysis module for managing the user experience for Unified Communications services, such as telepresence, video, and voice.

With the Replay acquisition we have added the nGenius Forensic Intelligence analysis module to our USDM portfolio. This module further
strengthens NetScouts USDM strategy by adding cybersecurity network forensic analysis capabilities to the nGenius Service Assurance Solution.

We saw continued growth during the fiscal year ended March 31, 2012, with product revenue growth of 5% and overall revenue growth of
6% compared to the prior fiscal year.

Bookings increased by 17% during the fiscal year ended March 31, 2012 when
compared to the prior fiscal year. Our total bookings for the service provider sector increased by 31% during the fiscal year ended March 31, 2012 as a result of our investment and expansion in that sector on a global basis, as well as
Long-term Evolution (LTE) deployments from the major global carriers. Our total bookings for the financial sector grew 15% when compared to the prior fiscal year despite a weakness in this sector within the European region.

We ended fiscal year 2012 with $13.0 million of product backlog, compared to an immaterial amount as of the end of fiscal year 2011.

At March 31, 2012, we had cash, cash equivalents and marketable securities of $213.5 million. This represents a decrease
of $15.0 million over the previous fiscal year ended March 31, 2011. During the fiscal year ended March 31, 2012, we maintained our liquidity despite acquisitions of product technology as well as cash outflows as a result of our share
repurchase program.

Use of Non-GAAP Financial Measures

From time to time in press releases regarding quarterly earnings, presentations and other communications, we may provide financial
information determined by methods other than in accordance with GAAP. Recent non-GAAP financial measures have included non-GAAP revenue, income from operations, net income and net income per diluted share, which were adjusted from amounts determined
based on GAAP to exclude the effect of purchase accounting adjustments to acquired deferred revenue resulting from our acquisitions, to eliminate the revenue impact of adopted accounting guidance, to remove: share-based compensation expenses,
certain business development and integration expenses, compensation for post combination services resulting from our acquisitions, the amortization of acquired intangible assets, restructuring charges and loss on early extinguishment of debt, net of
related income tax effects.

Management regularly uses supplemental non-GAAP financial measures internally to understand,
manage and evaluate its business and to make operating decisions. These non-GAAP measures are among the primary factors that management uses in planning and forecasting future periods. Management believes these non-GAAP financial measures enhance
the readers overall understanding of NetScouts current financial performance and its prospects for the future by providing a higher degree of transparency for certain financial measures and providing a level of disclosure that helps
investors understand how NetScout plans and measures its business. We believe that providing these non-GAAP measures affords investors a view of our operating results that may be more easily compared to our peer companies and against prior periods
by enabling investors to consider our operating results on both a GAAP and non-GAAP basis.

These non-GAAP measures are not in
accordance with GAAP, should not be considered an alternative for measures prepared in accordance with GAAP, and may have limitations in that they do not reflect all our results of operations as determined in accordance with GAAP. These non-GAAP
measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. The presentation of non-GAAP information is not meant to be considered superior to, in isolation from or as a substitute for
results prepared in accordance with GAAP.

We consider accounting policies related to marketable securities, revenue recognition, valuation of goodwill and acquired intangible assets and share based compensation to be critical in fully
understanding and evaluating our financial results. The application of these policies involves significant judgments and estimates by us.

We account for our investments in accordance with authoritative guidance. Under the provisions, we have classified our investments as available-for-sale which are carried at fair value based
on quoted market prices and associated unrealized gains or losses are recorded as a separate component of stockholders equity until realized. We consider all highly liquid investments purchased with a maturity of three months or less to be
cash equivalents and those with maturities greater than three months are considered to be marketable securities. Cash and cash equivalents typically consist of money market instruments, commercial paper with a maturity of three months or less and
cash maintained with various financial institutions. Marketable securities generally consist of U.S. Treasury bills, commercial paper with an original maturity of greater than three months, U.S. government bonds, certificates of deposit, agency
bonds, corporate bonds, auction rate securities and municipal bonds.

Long-term marketable securities consist of auction rate
securities, U.S. Treasury bills, corporate bonds and certificates of deposit. The auction rate securities we hold are all collateralized by student loans with underlying support by the federal government through the Federal Family Education Loan
Program (FFELP) and by monoline insurance companies. Auction rate securities typically were stated at par value prior to February 2008 due to liquidity provided through the auction process. While we continue to earn interest on auction rate
securities, the failure of these auctions has created illiquidity. As a result, par value no longer approximates the estimated fair value of auction rate securities. A discounted cash flow model was used to determine the estimated fair value of our
investments in auction rate securities as of March 31, 2012 and 2011. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, timing and amount of cash flows, a

liquidity risk premium and expected holding periods of the investments. Based on this assessment of fair value, as of March 31, 2012 we have recorded a cumulative decline in the fair value
of auction rate securities of $190 thousand ($117 thousand net of tax) which was deemed temporary. Assumptions used to value these securities and in determining the temporary nature of this impairment require significant judgment by management.
Changes in the assumptions could result in materially different estimates of fair values and the failure of these securities to return to par value or a decision by management to sell these securities at a loss could have a material adverse impact
on earnings.

In October 2009, the FASB amended the accounting standards for revenue recognition to remove tangible products containing software components and non-software components that function together to deliver
the products essential functionality from the scope of industry-specific software revenue recognition guidance. In October 2009, the FASB also amended the accounting standards for multiple deliverable revenue arrangements to:

(i)

provide updated guidance on how the deliverables in a multiple deliverable arrangement should be separated, and how the consideration should be allocated;

(ii)

require an entity to allocate arrangement consideration using its best estimate selling price of deliverables if a vendor does not have vendor-specific objective
evidence (VSOE) of selling price or third-party evidence (TPE) of selling price; and

(iii)

eliminate the use of the residual method and require an entity to allocate arrangement consideration using the relative selling price method.

We elected to early adopt this accounting guidance at the beginning of our first quarter of fiscal year 2011 on a prospective basis for
applicable transactions originating or materially modified after April 1, 2010. The adoption of this guidance did not have a material impact on our financial position or results of operations for the fiscal year ended March 31, 2011. The
following reflects our policy for revenue recognition.

Product revenue consists of sales of our hardware products (which
include required embedded software that works together with the hardware to deliver the hardwares essential functionality), licensing of our software products, and sale of hardware bundled with a software license. Product revenue is recognized
upon shipment, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable and collection of the related receivable is probable. Because many of our solutions are comprised of
both hardware and more than incidental software components, we recognize revenue in accordance with authoritative guidance on both hardware and software revenue recognition.

Service revenue consists primarily of fees from customer support agreements, consulting and training. We generally provide software and hardware support as part of product sales. Revenue related to the
initial bundled software and hardware support is recognized ratably over the support period. In addition, customers can elect to purchase extended support agreements for periods after the initial software warranty expiration, typically for 12-month
periods. Support services generally include rights to unspecified upgrades (when and if available), telephone and internet-based support, updates and bug fixes. Revenue from customer support agreements is recognized ratably over the support period.
Reimbursements of out-of-pocket expenditures incurred in connection with providing consulting services are included in services revenue, with the offsetting expense recorded in cost of service revenue. Training services include on-site and classroom
training. Training revenues are recognized as the related training services are provided.

Generally, our contracts are
accounted for individually. However, when contracts are closely interrelated and dependent on each other, it may be necessary to account for two or more contracts as one to reflect the substance of the group of contracts.

Multi-element arrangements are concurrent customer purchases of a combination of our product
and service offerings that may be delivered at various points in time. For multi-element arrangements comprised only of hardware products and related services, we allocate the total arrangement consideration to the multiple elements based on each
elements selling price compared to the total relative selling price of all the elements. Each elements selling price is based on managements best estimate of selling price (BESP) paid by customers based on the elements
historical pricing when VSOE or TPE does not exist. We have established BESP for product elements as the average selling price the element was sold for over the past six quarters, whether sold alone or sold as part of a multiple element transaction.
Our internal list price for products, reviewed quarterly by senior management, with consideration in regards to changing factors in our technology and in the marketplace, is generated to target the desired gross margin from sales of product after
analyzing historical discounting trends. We review sales of the product elements on a quarterly basis and update, when appropriate, BESP for such elements to ensure that it reflects recent pricing experience. We have established VSOE for services
related undelivered elements.

For multi-element arrangements comprised only of software products and related services, we
allocate a portion of the total arrangement consideration to the undelivered elements, primarily support agreements and training, using VSOE of fair value for the undelivered elements. The remaining portion of the total arrangement consideration is
allocated to the delivered software, referred to as the residual method. VSOE of fair value of the undelivered elements is based on the price customers pay when the element is sold separately. We review the separate sales of the undelivered elements
on a quarterly basis and update, when appropriate, its VSOE of fair value for such elements to ensure that it reflects recent pricing experience. If we cannot objectively determine the VSOE of the fair value of any undelivered software element, we
defer revenue until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements.

For multi-element arrangements comprised of a combination of hardware and software elements, the total arrangement consideration is bifurcated between the hardware and hardware related deliverables and
the software and software related deliverables based on the relative selling prices of all deliverables as a group. Then, arrangement consideration for the hardware and hardware-related services is recognized upon delivery or as the related services
are provided outlined above and revenue for the software and software-related services is allocated following the residual method and recognized based upon delivery or as the related services are provided.

Our product is distributed through our direct sales force and indirect distribution channels through alliances with resellers. Revenue
arrangements with resellers are recognized on a sell-in basis; that is, when we deliver the product to the reseller. We record consideration given to a reseller as a reduction of revenue to the extent we have recorded revenue from the reseller. We
do not offer contractual rights of return, stock balancing, or price protection to our resellers, and actual product returns from them have been insignificant to date. In addition, we have history of successfully collecting receivables from the
resellers. As a result, we do not maintain reserves for reseller product returns.

Valuation of Goodwill and Intangible Assets

The carrying value of goodwill was $170.4 million and $128.2 million as of March 31, 2012 and 2011, respectively.
Goodwill is reviewed for impairment at the enterprise-level at least annually or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. During the fiscal year ended March 31, 2012, we adopted
authoritative guidance that allows us to utilize a qualitative approach to test goodwill for impairment. This authoritative guidance permits us to first perform a qualitative assessment to determine whether it is more likely than not that the fair
value of our reporting units is less than its carrying value. Because NetScout, and its one reporting unit, did not experience any significant adverse changes in its business or reporting structures, we performed the qualitative Step 0 assessment.
In performing the qualitative Step 0 assessment, we considered certain events and circumstances specific to the entity as a whole, such as

macroeconomic conditions, industry and market considerations, overall financial performance and cost factors when evaluating whether it is more likely than not that the fair value of a reporting
unit is less than its carrying amount. No indicators of impairment were noted as of January 31, 2012. Additionally, the market capitalization of NetScout as a whole significantly exceeded its carrying value.

The carrying value of intangible assets was $54.7 million and $47.7 million as of March 31, 2012 and 2011, respectively. Intangible
assets acquired in a business combination are recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition. We amortize intangible assets over their estimated useful lives, except for the acquired
tradename which resulted from the Network General acquisition, which has an indefinite life and thus, is not amortized. The carrying value of the indefinite lived tradename is evaluated annually or more frequently if events or changes in
circumstances indicate that the asset might be impaired. NetScout completed its annual impairment test of the indefinite lived intangible as of January 31, 2012. As part of the impairment test, the fair value of the asset was compared
to its book value, $18.6 million. The indefinite lived intangible asset fair value was estimated using the discounted cash flow method and included assumptions on revenue forecasts earned using the tradename, royalty rate and weighted average
cost of capital rate. These estimates were based on historical performance and projections of future revenue and inputs used in current valuations performed for acquisitions made in fiscal year 2012. The resulting fair value of the
indefinite lived intangible asset was greater than its carrying value. We have performed a sensitivity analysis and varied each one of the estimated inputs into the impairment test and noted a change in any of the inputs by 20% would not result
in the carrying value exceeding the fair value and therefore would not require an impairment charge to be recognized.

We recognize compensation expense for all share-based payments. Under the fair value recognition
provisions, we recognize share-based compensation net of an estimated forfeiture rate and only recognize compensation cost for those shares expected to vest on a straight-line basis over the requisite service period of the award.

We are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If our actual
forfeiture rate is materially different from our estimate, the share-based compensation expense could be significantly different from what we have recorded in the current period.

Based on historical experience, we assumed an annualized forfeiture rate of 0% for awards granted to our directors, and an annualized
forfeiture rate of 10% for awards granted to our senior executives and remaining employees. We will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeitures
are higher than estimated.

Product revenue consists of sales of our hardware products and licensing of our software products. Service revenue consists of customer
support agreements, consulting and training. No one direct customer or indirect channel partner accounted for more than 10% of our total revenue during fiscal years ended March 31, 2012 and 2011.

Fiscal Year Ended March 31,(Dollars in Thousands)

Change

2012

2011

% ofRevenue

% ofRevenue

$

%

Revenue:

Product

$

168,141

54

%

$

159,948

55

%

$

8,193

5

%

Service

140,538

46

130,592

45

9,946

8

%

Total revenue

$

308,679

100

%

$

290,540

100

%

$

18,139

6

%

Product. The 5%, or $8.2 million, increase in product revenue was due to a $9.1 million
increase in revenue from our service provider sector and a $400 thousand increase in revenue from our enterprise sector. These increases were offset by a $1.3 million decrease in our government sector. Compared to the same period in the prior year,
we realized an 11% decrease in units shipped, while the average selling price per unit of our products increased approximately 17%. The increase in average selling price per unit is due to a shift in product mix from our lower priced probes and
software to our higher priced Infinistream products. Product revenue related to our acquisitions was $4.1 million during the year ended March 31, 2012.

We expect revenue growth to continue to accelerate within the service provider sector as we anticipate further gains due to acceptance of our LTE solution within our large service provider carriers.

Service. The 8%, or $9.9 million, increase in service revenue was due to a $10.6 million increase in revenue from
maintenance contracts due to increased new maintenance and renewals from a growing support base and an $834 thousand increase in premium support contracts. This was partially offset by a $675 thousand decrease in consulting revenue and a $937
thousand decrease in training revenue mainly due to the one-time recognition of $1.0 million in training revenue during the quarter ended June 30, 2010 from non-refundable expired contracts. Prior to the quarter ended June 30, 2010, we had
not been able to demonstrate that we had fulfilled our obligations under these contracts. However, starting with the quarter ended June 30, 2010, we were able to demonstrate that our obligations had been fulfilled. While we will continue to
recognize revenue from non-refundable expired contracts, revenue in future quarters from such expired contracts is not expected to be significant. Service revenue related to our acquisitions was $1.4 million during the year ended March 31,
2012.

Total product and service revenue from direct and indirect channels are as follows:

The 3%, or $5.5 million, decrease in indirect channel revenue is the result of the decline
in sales to government customers, as well as our European service provider and financial customers. Sales to customers outside the United States are export sales through channel partners, who are generally responsible for distributing our products
and providing technical support and service to customers within their territories. Our reported international revenue does not include any revenue from sales to customers outside the United States that are shipped to our United States-based indirect
channel partners. These domestic resellers fulfill customer orders based upon joint selling efforts in conjunction with our direct sales force and may subsequently ship our products to international locations; however, we report these shipments as
United States revenue since we ship the products to a domestic location. The 20%, or $23.7 million, increase in direct channel revenue is the result of increased domestic revenue from our service provider and financial customers.

Total revenue by geography is as follows:

Fiscal Year Ended March 31,(Dollars in Thousands)

Change

2012

2011

% ofRevenue

% ofRevenue

$

%

United States

$

230,359

75

%

$

211,711

73

%

$

18,648

9

%

International:

Europe

32,998

10

37,921

13

(4,923

)

(13

%)

Asia

17,637

6

16,260

6

1,377

8

%

Rest of the world

27,685

9

24,648

8

3,037

12

%

Subtotal international

78,320

25

78,829

27

(509

)

(1

%)

Total revenue

$

308,679

100

%

$

290,540

100

%

$

18,139

6

%

United States revenues increased 9%, or $18.6 million, as a result of an increase in our service provider
and financial sectors. The 1%, or $509 thousand, decrease in international revenue is due to decline in our financial and service provider sectors in Europe. The decline in sales from Europe reflects the impact of economic conditions in the region.
We expect revenue from sales to customers outside the United States to continue to account for a significant portion of our total revenue in the future. In accordance with United States export control regulations we do not sell to, or do business
with, countries subject to economic sanctions and export controls.

Product. The 3%, or $1.1 million, increase in cost of product revenue was
primarily due to the 5%, or $8.2 million increase in product revenue for the fiscal year ended March 31, 2012 when compared to the fiscal year ended March 31, 2011. Amortization of software and core technology included as cost of product
revenue increased by $671 thousand for the fiscal year ended March 31, 2012.

The product gross profit percentage
increased by one point to 77% during the fiscal year ended March 31, 2012. This increase was primarily due to lower discounting, offset by the increase in amortization of software and core technology. Average headcount in cost of product
revenue was 26 and 29 for the years ended March 31, 2012 and 2011, respectively.

Service. The 14%, or $3.2
million, increase in cost of service revenue was primarily due to a $1.9 million increase in employee related expenses resulting from increased headcount to support our growing installed base, a $793 thousand increase in cost of materials used to
support customers under service contracts and a $210 thousand increase in allocated overhead costs. The 6%, or $6.7 million, increase in service gross profit corresponds with the 8%, or $9.9 million, increase in service revenue, offset by the 14%,
or $3.2 million, increase in cost of services. The service gross profit percentage decreased by one point to 81% for the fiscal year ended March 31, 2012. Average headcount in cost of service revenue was 125 and 115 for the years ended
March 31, 2012 and 2011, respectively.

Gross profit. Our gross profit increased 6%, or $13.8 million. This
increase is attributable to our increase in revenue of 6%, or $18.1 million, offset by a 7%, or $4.3 million, increase in cost of revenue. The gross margin percentage remained flat at 79% during the fiscal year ended March 31, 2012.

Research and development. Research and development expenses consist primarily of personnel
expenses, fees for outside consultants, overhead and related expenses associated with the development of new products and the enhancement of existing products.

The 22%, or $8.9 million, increase in research and development expenses is due to a $4.7 million increase in employee related expenses, due to increased headcount and share-based compensation expenses, a
$1.5 million increase in integration costs largely related to the acquisition of Simena, a $987 thousand increase in depreciation, a $438 thousand increase in compensation for post combination services related to the acquisition of Replay, a $404
thousand increase in overhead allocations, a $363 thousand increase in rent and office expense due to the acquisitions of Psytechnics and Replay and a $257 thousand increase in technical supplies. Average headcount in research and development was
291 and 257 for the fiscal years ended March 31, 2012 and 2011, respectively.

Sales and marketing. Sales and
marketing expenses consist primarily of personnel expenses, including commissions, overhead and other expenses associated with selling activities and marketing programs such as trade shows, seminars, advertising, and new product launch activities.

The 4%, or $4.4 million, increase in total sales and marketing expenses was primarily due to a $3.4 million increase in
employee related expenses and share-based compensation expenses, an $840 thousand increase in commission expense, an $829 thousand increase in trade show expenses, a $787 thousand increase in travel expenses and a $405 thousand increase in sales
meetings. These expenses were partially offset by a $983 thousand decrease in expenses related to the NetScout user conference as this was not held during the year ended March 31, 2012 and a $649 thousand decrease in recruiting costs. Average
headcount in sales and marketing was 317 and 312 for the fiscal years ended March 31, 2012 and 2011, respectively.

General and administrative. General and administrative expenses consist primarily of personnel expenses for executive, financial,
legal and human resource employees, overhead and other corporate expenditures.

The 18%, or $4.2 million, increase in general
and administrative expenses was primarily due to a $2.2 million increase in employee related expenses related to stock-based compensation and incentive compensation, and, a $1.2 million increase in business development costs associated with the
acquisitions, a $477 thousand increase in professional services and a $381 thousand increase in consulting fees. Average headcount in general and administrative was 117 and 113 for the fiscal years ended March 31, 2012 and 2011, respectively.

Restructuring charges. During the fiscal year ended March 31, 2012, we
implemented a plan to restructure parts of our general and administrative organization to centralize operations as well as our international sales organization to better align our resources with forecasted sales opportunities. As a result of the
restructuring program, we eliminated 12 positions and recorded $603 thousand of restructuring charges related to severance costs paid to employees.

Interest and Other Expense, Net

Interest and other expense, net includes
interest earned on our cash, cash equivalents, marketable securities and restricted investments, interest expense and other non-operating gains or losses.

Fiscal Year Ended
March 31,(Dollars in Thousands)

Change

2012

2011

% ofRevenue

% ofRevenue

$

%

Interest and other expense, net

$

(2,765

)

(1

%)

$

(1,772

)

(1

%)

$

(993

)

56

%

The 56%, or $993 thousand, increase in interest and other expense was due to a $690 thousand loss on the
extinguishment of debt in connection with the refinancing of our prior credit facility, a $369 thousand increase in a one-time foreign currency transaction expense recorded as a result of the acquisition of Replay, a $256 thousand increase in
foreign currency transaction expense and a $253 thousand decrease in interest income due to lower overall market interest rates. These increases to interest and other expense were partially offset by a $686 thousand decrease in interest expense due
to a decrease in the interest rate and principal amounts outstanding associated with our debt. During the fiscal years ended March 31, 2012 and 2011, the average interest rates on our term loan were 2.123% and 2.750%, respectively.

The
annual effective tax rate for fiscal year 2012 is 36.3%, compared to an annual effective tax rate of 33.8% for fiscal year 2011. Generally, the annual effective tax rates differ from statutory rates primarily due to the impact of the domestic
production activities deduction, differences in tax rates in foreign jurisdictions and federal, foreign and state tax credits. The difference in our effective tax rate compared to the prior year is primarily due to acquisition related items, a lower
qualified production activity deduction, tax reserves and differences in tax rates in foreign jurisdictions as compared to the United States.

Net income for the fiscal years ended March 31, 2012 and 2011 was as follows:

Fiscal Year Ended
March 31,(Dollars in Thousands)

Change

2012

2011

% ofRevenue

% ofRevenue

$

%

Net income

$

32,428

11

%

$

37,265

13

%

$

(4,837

)

(13

%)

The $4.8 million decrease in net income during the fiscal year ended March 31, 2012 was largely
attributable to the $18.2 million increase in operating expenses mainly due to increased employee related expenses, incentive compensation and business development costs, a $1.0 million increase in interest and other expenses, net offset by a $13.8
million increase in total gross profit and a $538 thousand decrease in the income tax provision.

Product revenue
consisted of sales of our hardware products and licensing of our software products. Service revenue consisted of customer support agreements, consulting and training. No one direct customer or indirect channel partner accounted for more than 10% of
our total revenue during fiscal years ended March 31, 2011 and 2010.

Fiscal Year Ended
March 31,(Dollars in Thousands)

Change

2011

2010

% ofRevenue

% ofRevenue

$

%

Revenue:

Product

$

159,948

55

%

$

142,113

55

%

$

17,835

13

%

Service

130,592

45

118,229

45

12,363

10

%

Total revenue

$

290,540

100

%

$

260,342

100

%

$

30,198

12

%

Product. The 13%, or $17.8 million, increase in product revenue was due to an $11.3 million
increase in our enterprise business sector and a $6.5 million increase in our service provider sector. Compared to our previous fiscal year, we realized an increase of approximately 22% in the average selling price per unit of our products offset by
a 6% decrease in units shipped. The increase in selling price per unit is due to a shift in product mix towards our higher capacity Infinistream products. The 6% decrease in units shipped was also due to product mix.

Service. The 10%, or $12.4 million, increase in service revenue was due in part to a $4.2 million increase in revenue from
maintenance contracts due to increased renewals from a growing support base, a $3.9 million increase in revenue from post-contract customer support in connection with product revenue growth, and an $827 thousand increase in other service revenue
largely due to on-site revenue. In addition, there was a decline of $1.2 million in purchase accounting adjustments to deferred service revenue associated with our acquisition of Network General. As a result of this acquisition, acquired deferred
revenue was reduced to fair value to eliminate selling profit from the contracts that were acquired from Network General. As the fair value adjusted deferred revenue has amortized over time, it comprised a smaller proportion of total maintenance
revenue during the fiscal year ended March 31, 2011. Subsequent maintenance renewal contracts are recorded at their full value and thus result in higher recorded revenue. We also recognized $1.7 million in training and consulting revenue during
the fiscal year ended March 31, 2011 from non-refundable expired contracts. In prior years, we had not been able to demonstrate that we had fulfilled our obligations. However, starting with the quarter ended June 30, 2010, we were able to
demonstrate that our obligations had been fulfilled related to the non-refundable expired contracts. While we will continue to recognize revenue from non-refundable contracts, we do not expect the revenue in future quarters to be significant.

Total product and service revenue from direct and indirect channels are as follows:

Fiscal Year Ended
March 31,(Dollars in Thousands)

Change

2011

2010

% ofRevenue

% ofRevenue

$

%

Indirect

$

172,010

59

%

$

159,379

61

%

$

12,631

8

%

Direct

118,530

41

100,963

39

17,567

17

%

Total revenue

$

290,540

100

%

$

260,342

100

%

$

30,198

12

%

The 8%, or $12.6 million, increase in indirect channel revenue is the result of an increase in
international sales. Sales to customers outside the United States are primarily export sales through channel partners, who are generally responsible for distributing our products and providing technical support and service to customers

within their territories. Our reported international revenue does not include any revenue from sales to customers outside the United States that are shipped to our United States-based indirect
channel partners. These domestic resellers fulfill customer orders based upon joint selling efforts in conjunction with our direct sales force and may subsequently ship our products to international locations; however, we report these shipments as
United States revenue since we ship the products to a domestic location. The 17%, or $17.6 million, increase in direct channel revenue and change in sales mix between direct and indirect is primarily the result of increased domestic revenue from our
service provider and enterprise sectors, as well as the $1.2 million reduction in purchase accounting adjustments related to the Network General acquisition which had the effect of increasing revenue.

Total revenue by geography is as follows:

Fiscal Year Ended
March 31,(Dollars in Thousands)

Change

2011

2010

% ofRevenue

% ofRevenue

$

%

United States

$

211,711

73

%

$

189,517

73

%

$

22,194

12

%

International:

Europe

37,921

13

35,072

14

2,849

8

%

Asia

16,260

6

13,694

5

2,566

19

%

Rest of the world

24,648

8

22,059

8

2,589

12

%

Subtotal international

78,829

27

70,825

27

8,004

11

%

Total revenue

$

290,540

100

%

$

260,342

100

%

$

30,198

12

%

United States revenues increased 12%, or $22.2 million, as a result of strong growth in our enterprise
sector, which includes financial services, and in our service provider sector. The 11%, or $8.0 million, increase in international revenue is also due to growth in both our enterprise and service provider sectors. We expect revenue from sales to
customers outside the United States to continue to account for a significant portion of our total revenue in the future. In accordance with United States export control regulations we do not sell or do business with countries subject to economic
sanctions and export controls.

Product. The 7%, or $2.6 million, increase in cost of product revenue was primarily due to
the 13%, or $17.8 million increase in product revenue for the fiscal year ended March 31, 2011 when compared to the fiscal year ended March 31, 2010. Our product gross profit percentage increased by one point to 76% during the fiscal year
ended March 31, 2011. This increase was primarily due to favorable product mix and improved overhead absorption. Average headcount in cost of product revenue was 29 and 27 for the years ended March 31, 2011 and 2010, respectively.

Service. The 13%, or $2.7 million, increase in cost of service revenue was primarily due to a $2.0 million
increase in employee related expenses resulting from increased headcount to support our growing installed base as well as increased incentive compensation, a $223 thousand increase in cost of materials used to support customers under service
contracts and a $344 thousand increase in travel in our support and consulting groups. The 10%, or $9.7 million, increase in service gross profit corresponds with the 10%, or $12.4 million, increase in service revenue, offset by the 13%, or $2.7
million, increase in cost of services. The service gross profit percentage decreased by one point to 82% for the fiscal year ended March 31, 2011. Average headcount in cost of service revenue was 115 and 105 for the years ended March 31,
2011 and 2010, respectively.

Gross profit. Our gross profit increased 12%, or $24.9 million. This increase is
attributable to our increase in revenue of 12%, or $30.2 million, offset by a 9%, or $5.3 million, increase in cost of revenue. The net effect of the combined increases in revenue and cost of revenue on gross margin was a one point increase during
the fiscal year ended March 31, 2011.

Research and development. Research and development expenses consist primarily of personnel
expenses, fees for outside consultants, overhead and related expenses associated with the development of new products and the enhancement of existing products.

The 11%, or $4.0 million, increase in research and development expenses is primarily due to increases in incentive compensation and other employee related expenses due to increased headcount associated
with continued investment in our service provider and enterprise offerings. In addition, there was a $408 thousand increase due to the capitalization of salaries associated with late stage software development during the fiscal year ended
March 31, 2010. Average headcount in research and development was 257 and 238 for the fiscal years ended March 31, 2011 and 2010, respectively.

Sales and marketing. Sales and marketing expenses consist primarily of personnel expenses, including commissions, overhead and other expenses associated with selling activities and marketing
programs such as trade shows, seminars, advertising, and new product launch activities.

The 6%, or $6.2 million, increase in
total sales and marketing expenses was primarily due to a $5.0 million increase in employee related expenses resulting from increased headcount tied to new sales territories, a $1.4 million increase in travel expenses tied to increased headcount,
marketing events and sales meetings, a $778 thousand increase in recruiting fees, a $750 thousand increase in expenses related to the NetScout user conferences and other sales meetings, a $557 thousand increase in depreciation expense associated
with demonstration units and a $195 thousand increase in rent. These were partially offset by a $2.5 million decrease in sales commissions. During the fiscal year ended March 31, 2010, sales commissions were larger due to the impact of
unusually high early and multi-year renewal bookings for which expense is recognized when earned. Average headcount in sales and marketing was 312 and 297 for the fiscal years ended March 31, 2011 and 2010, respectively.

General and administrative. General and administrative expenses consist primarily of personnel expenses for executive, financial,
legal and human resource employees, overhead and other corporate expenditures.

The 13%, or $2.7 million, increase in general
and administrative expenses was primarily due to a $2.0 million increase in incentive compensation and other employee related expenses and a $1.6 million increase in professional services largely due to business development costs. These were
partially offset by a $540 thousand decrease in allocated overhead costs due to lower facility costs and depreciation expense, as well as a $341 thousand decrease in consulting costs. Average headcount in general and administrative was 113 and 109
for the fiscal years ended March 31, 2011 and 2010, respectively.

Interest and other expense, net includes interest earned on our cash, cash equivalents, marketable securities and restricted investments,
interest expense and other non-operating gains or losses.

Fiscal Year Ended March 31,(Dollars in Thousands)

Change

2011

2010

% ofRevenue

% ofRevenue

$

%

Interest and other expense, net

$

(1,772

)

(1

%)

$

(2,832

)

(1

%)

$

1,060

37

%

The 37%, or $1.1 million, decrease in interest and other expense was primarily due to a $1.0 million
decrease in interest expense due to a reduction in the interest rate and principal amounts outstanding associated with our debt. During the fiscal years ended March 31, 2011 and 2010, the average interest rates on our term loan were 2.750% and
3.453%, respectively. Interest income was relatively flat compared to the prior year.

The annual effective tax rate for fiscal year 2011 is 33.8%, compared to an annual effective tax rate of 35.2% for fiscal year 2010.
Generally, the annual effective tax rates differ from statutory rates primarily due to the impact of the domestic production activities deduction, differences in tax rates in foreign jurisdictions and federal and state tax credits. The difference in
our effective tax rate compared to the prior year is primarily due to the reinstatement of the federal research and development credit and an increase in our domestic production activities deduction. The federal research and development credit was
re-enacted on December 17, 2010 as part of The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (H.R. 4853). The impact of this law change was accounted for during the quarter ended December 31,
2010. This act retroactively extends the federal research and development credit to the beginning of calendar year 2010. We have recorded a rate reduction of approximately 1.4% to our annual effective tax rate for fiscal year 2011 attributed to this
tax law change.

Net income for the fiscal years ended March 31, 2011 and 2010 was as follows:

Fiscal Year Ended March 31,(Dollars in Thousands)

Change

2011

2010

% ofRevenue

% ofRevenue

$

%

Net income

$

37,265

13

%

$

27,917

11

%

$

9,348

33

%

The $9.3 million increase in net income during the fiscal year ended March 31, 2011 was largely
attributable to the $24.9 million increase in total gross profit and a $1.0 million decrease in interest expense offset by a $12.7 million increase in operating expenses mainly due to increased employee related expenses and incentive compensation.

As of March 31, 2012, the total amount of net unrecognized tax benefits for uncertain tax positions
and the accrual for the related interest was $335 thousand. We are unable to make a reliable estimate when cash settlement, if any, will occur with a tax authority as the timing of examinations and ultimate resolution of those examinations is
uncertain. We have also excluded long-term deferred revenue of $18.7 million as such amounts will be recognized as services are provided.

(1)

Includes estimated future interest at an interest rate of 1.500% for our outstanding term loan at March 31, 2012.

(2)

We lease facilities and certain equipment under operating lease agreements extending through September 2023 for a total of $38.9 million.

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been
established for the purpose of facilitating off-balance sheet arrangements. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

We account for claims and contingencies in accordance with authoritative guidance that requires us to record an estimated loss from a claim or loss contingency when information available prior to issuance
of our consolidated financial statements indicates that it is probable that a liability has been incurred at the date of the consolidated financial statements and the amount of the loss can be reasonably estimated. If we determine that it is
reasonably possible but not probable that an asset has been impaired or a liability has been incurred or if the amount of a probable loss cannot be reasonably estimated, then in accordance with the authoritative guidance, we disclose the amount
or range of estimated loss if the amount or range of estimated loss is material. Accounting for claims and contingencies requires us to use our judgment. We consult with legal counsel on those issues related to litigation and seek input from other
experts and advisors with respect to matters in the ordinary course of business. See Note 17 for a discussion of contingencies.

We recorded two contingent liabilities related to the acquisition of Simena. One relates to future consideration to be paid to the former
owner which had an initial fair value of $8.0 million at the time of acquisition and another relates to contractual non-compliance liabilities incurred by Simena with an initial fair value of $1.6 million at the time of acquisition. At
March 31, 2012, the present value of the future consideration was $8.2 million and the contractual non-compliance liability was $700 thousand.

As disclosed in Item 3, in March 2012, we uncovered and investigated, and in April
2012, disclosed to the U.S. Department of Justice and the California State Attorney General potential violations of federal and California state anti-trust laws. The potential violations involve a former employee and one or more third parties
in connection with sales to state governmental agencies during fiscal year 2012. We believe we did not benefit from any of the transactions uncovered and that the amounts involved are not believed at this time to be material. It is possible
that the U.S. Department of Justice and/or the California State Attorney General may conduct an investigation into the matter. We are cooperating fully and intend to provide any requested information if asked. In general, the federal and
state agencies have the authority to seek fines and other remedies for anti-trust violations; however, no charges or proceedings have been initiated by any governmental agency against NetScout. We determined that it is probable that there will be
amounts due, those amounts are reasonably estimable and have been accrued as an immaterial liability as of March 31, 2012.

Our combined product backlog at March 31, 2012, consisting of unshipped orders and deferred product revenue, was
$13.0 million compared to an immaterial amount at March 31, 2011. Due to the fact that most if not all of our customers have the contractual ability to cancel unshipped orders prior to shipment we cannot provide assurance that our product
backlog at any point in time will ultimately become revenue.

We warrant that our software and hardware products will substantially conform to the documentation accompanying such products on their
original date of shipment. For software, which also includes firmware, the standard warranty commences upon shipment and expires 90 days thereafter. With regard to hardware, the standard warranty commences upon shipment and expires 12 months
thereafter. Additionally, this warranty is subject to various exclusions which include, but are not limited to, non-conformance resulting from modifications made to the software or hardware by a party other than NetScout; customers failure to
follow our installation, operation or maintenance instructions; and events outside of our reasonable control. We also warrant that all support services will be performed in a good and workmanlike manner. We believe that our product and support
service warranties are consistent with commonly accepted industry standards. No warranty cost information is presented and no warranty costs are accrued since service revenue associated with warranty is deferred at the time of sale and recognized
ratably over the warranty period.

Contracts that we enter into in the ordinary course of business may contain standard
indemnification provisions. Pursuant to these agreements, we may agree to defend third party claims brought against a partner or direct customer claiming infringement of such third party's (i) U.S. patent and/or European Union (EU), or
other selected countries patents, (ii) Berne convention member country copyright, and/or (iii) U.S., EU, and/or other selected countries trademark or intellectual property rights. Moreover, this indemnity may require us to pay
any damages awarded against the partner or direct customer in such type of lawsuit as well as reimburse the partner or direct customer for reasonable attorney's fees incurred by them from the lawsuit.

We may also agree from time to time to provide other forms of indemnification to partners or direct customers, such
as indemnification that would obligate us to defend and pay any damages awarded to a third party against a partner or direct customer based on a lawsuit alleging that such third party has suffered personal injury or tangible property damage
legally determined to have been caused by negligently designed or manufactured products.

We have agreed to
indemnify our directors and officers and our subsidiaries directors and officers if they are made a party or are threatened to be made a party to any proceeding (other than an action by or in the right of NetScout) by reason of the fact that
the indemnified are an agent of NetScout or by reason of anything done or not done by them in any such capacity. The indemnity is for any and all expenses and liabilities of any type (including but not limited to, judgments, fines and amounts paid
in settlement) reasonably incurred by the directors or officers in connection with the investigation, defense, settlement or appeal of such proceeding, provided they acted in good faith.

Substantially all of our cash, cash equivalents and marketable securities are located in the United States. Cash, cash equivalents, and
marketable securities consist of the following (in thousands):

As of March 31,

2012

2011

2010

Cash and cash equivalents

$

117,255

$

67,168

$

63,322

Short-term marketable securities

79,617

133,430

69,875

Long-term marketable securities

16,644

27,880

37,354

Cash, cash equivalents and marketable securities

$

213,516

$

228,478

$

170,551

At March 31, 2012, we had a credit facility with a syndicate of lenders led by KeyBank National
Association (KeyBank) which provides us with a $250 million revolving credit facility, which may be increased to $300 million at any time up to 90 days before maturity. The revolving credit facility includes a swing line loan sub-facility of up to
$10 million and a letter of credit sub-facility of up to $10 million. The credit facility matures on November 21, 2016. At March 31, 2012, $62.0 million was outstanding under the credit facility.

At our election, revolving loans under the Credit Agreement bear interest at either (a) a rate per annum equal to the highest of
(1) KeyBanks prime rate, (2) 0.50% in excess of the federal funds effective rate, or (3) one hundred (100.00) basis points in excess of the London Interbank Offered Rate for one-month interest periods, or the Base Rate; or
(b) the one-, two-, three-, or six-month per annum London InterBank Offered Rate (LIBOR), as selected by NetScout, multiplied by the statutory reserve adjustment, or collectively, the Eurodollar Rate, in each case plus an applicable margin.
Swing line loans will bear interest at the Base Rate plus the applicable Base Rate margin. Beginning with the delivery of our financial statements for the quarter ended December 31, 2011, the applicable margin began to vary depending on our
leverage ratio, ranging from 100 basis points for Base Rate loans and 200 basis points for Eurodollar Rate loans if NetScouts consolidated leverage ratio is 2.50 to 1.00 or higher, down to 25 basis points for Base Rate loans and 125 basis
points for Eurodollar Rate loans if our consolidated leverage ratio is 1.00 to 1.00 or less. Our consolidated leverage ratio is the ratio of its total funded debt compared to its consolidated adjusted earnings before interest, taxes, depreciation
and amortization (EBITDA). Consolidated adjusted EBITDA includes certain adjustments, including, without limitation, adjustments relating to restructuring charges, deferred revenue revaluation, certain non-cash charges not related to such
acquisitions, and certain non-cash stock-based expenses, all as set forth in detail in the definition of Consolidated EBITDA in the Credit Agreement.

The Credit Agreement provides for payments of interest only during its 5 year term. Interest on Base Rate loans is payable at the end of each calendar quarter. Interest on Eurodollar Rate loans is payable
at the end of each interest rate period and at the end of each three-month interval within an interest rate period if the period is longer than three months. We may also prepay loans under the Credit Agreement at any time, without penalty, subject
to certain notice requirements. As of March 31, 2012, the interest rate on the term loan was 1.500%, and we expect this to be the rate in effect until April 23, 2012.

The loans are guaranteed by each of our domestic subsidiaries and are collateralized by all of our assets and our domestic subsidiaries,
as well as 65% of the capital stock of our foreign subsidiaries directly owned by us and our domestic subsidiaries. The Credit Agreement generally prohibits, with certain exceptions, any other liens on the assets of NetScout and our subsidiaries,
subject to certain exceptions as described in the Credit Agreement. The Credit Agreement contains certain covenants applicable to us and our subsidiaries, including, without limitation, limitations on additional indebtedness, liens, various
fundamental changes (including dispositions of assets and mergers), dividends and distributions, capital expenditures, investments (including acquisitions and investments in foreign subsidiaries), transactions with affiliates, sale-leaseback
transactions, hedge agreements, payment of junior financing, changes in business, and other limitations customary in senior secured credit facilities. In addition, we are required to maintain certain consolidated leverage and interest coverage
ratios as well as a minimum liquidity amount. As of March 31, 2012, we were in compliance with all covenants.

Cash, cash equivalents, and marketable securities decreased by $15.0 million from
March 31, 2011 to March 31, 2012. While cash and cash equivalents increased by $50.1 million, short and long-term marketable securities decreased in total by $65.0 million.

Our long-term marketable securities include investments in auction rate securities. Beginning in February 2008 and continuing through
March 31, 2012, auctions have failed resulting in a lack of short-term liquidity for these securities, which has caused us to classify $1.5 million as long-term on our consolidated balance sheet. The remaining $17.6 million was reported as
short-term reflecting redemption notices for certain of our auction rate securities at par value which will occur in June 2012. As of March 31, 2012, our auction rate securities consisted of three positions issued by municipal agencies with a
total par value of $19.3 million and a current estimated market value totaling $19.1 million. The auction rate securities held by NetScout at March 31, 2012 have maturity dates ranging from December 2032 through June 2038. As of March 31,
2012, the portion of the securities reported as long-term were all AAA rated. These securities are collateralized by student loans with underlying support by the federal government through the FFELP and by monoline insurance companies. We have the
ability and intent to hold these securities until a recovery in the auction process or other liquidity event occurs. The fair value of these securities has been estimated by management based on the assumptions disclosed in the notes to our
consolidated financial statements. We will continue to analyze our auction rate securities each reporting period for impairment, and we may be required to record an impairment charge in the consolidated statement of operations if the decline in fair
value is determined to be other-than-temporary. The estimated fair value of our auction rate securities could change significantly based on market and economic conditions, including changes in market rates, the estimated timing until a liquidity
event, the discount factor associated with illiquidity and the credit ratings of our securities. There is no assurance as to when liquidity will return to this investment class, and therefore, we continue to monitor and evaluate these securities.
Based on our expected operating cash flows, and our other sources of cash, we do not expect the lack of liquidity in these investments to affect our ability to execute our current business plan.

Net cash provided by operating activities amounted to $68.3 million during the fiscal year ended March 31, 2012. The primary sources
of operating cash flow in the fiscal year ended March 31, 2012 included net income of $32.4 million, adjusted to exclude the effects of non-cash items of $31.5 million, including depreciation and amortization, share-based compensation expense,
deferred income taxes, loss on extinguishment of debt, loss on disposal of fixed assets, and deal related compensation and accretion charges, a $10.3 million increase in deferred revenue resulting from increased billings and a $1.6 million increase
in accrued compensation and other expenses. These increases were offset by a $4.0 million increase in accounts receivable resulting from increased billings. The overall increase in cash provided by operating activities is attributable to net income.

Net cash provided by operating activities amounted to $67.2 million during the fiscal year ended March 31, 2011. The
primary sources of operating cash flow in the fiscal year ended March 31, 2011 included net income of $37.3 million, adjusted to exclude the effects of non-cash items of $23.9 million, including depreciation and amortization, share-based
compensation expense, deferred income taxes and loss on disposal of fixed assets, a $3.4 million increase in accrued compensation resulting from an increase in non-sales incentive compensation and a $2.8 million decrease in accounts receivable
resulting from decreased billings. The overall increase in cash provided by operating activities is attributable to net income improvement over the prior year.

Net cash provided by operating activities amounted to $45.7 million during the fiscal year
ended March 31, 2010. The primary sources of operating cash flow in the fiscal year ended March 31, 2010 included net income of $27.9 million, adjusted to exclude the effects of non-cash items of $25.6 million, including depreciation and
amortization, share-based compensation expense, deferred income taxes, inventory write-downs and loss on disposal of fixed assets, a $22.3 million increase in deferred revenue resulting from increased billings and a $5.7 million increase in prepaid
income taxes, offset by a $25.7 million increase in accounts receivable resulting from increased billings, a $4.0 million decrease in accrued compensation and other expense primarily due to a decrease in non-sales incentive compensation based on
Company underperformance in the year ended March 31, 2010. The overall increase in cash provided by operating activities is attributable to net income improvement over the prior year.

For the fiscal years
ended March 31, 2012, 2011 and 2010, cash provided by (used in) investing activities reflects the purchase of marketable securities of $117.7 million, $153.9 million and $92.9 million, respectively, offset by the proceeds from maturities and
sales of marketable securities due to cash management activities of $184.9 million, $101.1 million and $39.1 million, respectively. The fiscal year ended March 31, 2012 includes the acquisitions of Psytechnics, Replay and Simena for $46.7
million, net of cash acquired in such transactions. The fiscal year ended March 31, 2010 includes $408 thousand in capitalized software development costs. Cash used in investing activities also includes capital expenditures. Capital
expenditures for fixed assets of $11.3 million, $7.5 million and $5.2 million for the fiscal years ended March 31, 2012, 2011 and 2010, respectively, represent an investment in our infrastructure as we prepared for future growth. We anticipate
that our investment in our infrastructure will grow in future quarters.

Net cash used in financing activities.

Net cash used in financing activities was $27.4 million during the fiscal year ended March 31, 2012. The primary outflow was due to
the repayment of $68.1 million of our long-term debt with KeyBank, $20.6 million for the repurchase of common stock on the open market and an $846 thousand payment related to the Simena contingent consideration. These outflows were offset by net
proceeds received from the issuance of long-term debt totaling $60.7 million in connection with the refinancing of the previous credit facility, $965 thousand related to the excess tax benefit from stock options exercised and $473 thousand in
proceeds from the issuance of common stock under stock plans.

Net cash used in financing activities was $3.4 million during
the fiscal year ended March 31, 2011. The primary outflow was due to the repayment of $11.3 million of our long-term debt with KeyBank and $367 thousand for the net issuance of common stock under stock plans, offset by an $8.2 million tax
benefit from stock options exercised.

Net cash used in financing activities was $5.0 million during the fiscal year ended
March 31, 2010. The primary outflow was due to the repayment of $13.1 million of our long-term debt with KeyBank which included a $3.1 million excess cash flow payment, offset by $3.0 million for the net issuance of common stock under stock
plans and a tax benefit from stock options exercised of $5.1 million.

We believe that our cash balances, short-term marketable securities classified as available-for-sale and future cash flows generated by
operations will be sufficient to meet our anticipated cash needs for working capital, capital expenditures and scheduled interest payments on our debt for at least the next 12 months. If demand for our product were to decrease substantially, our
ability to generate cash flow sufficient for our short-term working capital and expenditure needs could be materially impacted.

Additionally, a portion of our cash may be used to acquire or invest in complementary
businesses or products or to obtain the right to use complementary technologies. From time to time, in the ordinary course of business, we evaluate potential acquisitions of such businesses, products or technologies such as our acquisitions of
Psytechnics on April 1, 2011, Replay on October 3, 2011 and Simena on November 18, 2011. If our existing sources of liquidity are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt
securities. The sale of additional equity or debt securities could result in additional dilution to our stockholders.

In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
No. 2011-11: Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities (ASU 2011-11), which requires companies to disclose information about financial instruments that have been offset and related arrangements to enable
users of its financial statements to understand the effect of those arrangements on its financial position. Companies will be required to provide both net (offset amounts) and gross information in the notes to the financial statements for relevant
assets and liabilities that are offset. ASU 2011-11 will be effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013 (the fourth quarter of fiscal year 2013 for NetScout). The adoption of
ASU 2011-11 impacts financial statement presentation only; accordingly, it will have no impact on our financial condition, results of operations, or cash flows.

In June 2011, the FASB issued ASU No. 2011-05: Presentation of Comprehensive Income (ASU 2011-05), which requires disclosure of comprehensive income, the components of net income, and the components
of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the
statement of changes in shareholders equity. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic
220), that deferred the requirement to separately present within net income reclassification adjustments of items out of accumulated other comprehensive income. NetScout adopted this standard during the first quarter of fiscal year 2013. The
adoption of ASU 2011-05 impact financial statement presentation only; accordingly, it will have no impact on our financial condition, results of operations, or cash flows.

Market Risk. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our primary market risk exposures are in the
areas of illiquidity of auction rate securities, interest rate risk and foreign currency exchange rate risk. We currently do not hedge interest rate exposure, but do not believe that a fluctuation in interest rates would have a material impact on
the value of our cash equivalents and marketable securities. Our auction rate securities are stated at fair value based on risk adjusted discounted cash flow calculations. Prior to February 2008, these securities typically were stated at par value.
While we continue to earn interest on auction rate securities at the maximum contractual rate, these securities are not currently trading and therefore do not currently have a readily determinable market value. Accordingly, par value no longer
approximates the estimated fair value of auction rate securities. As a result of their illiquidity, we have recorded a temporary impairment at March 31, 2012 and 2011 against the carrying value of our auction rate securities.

At March 31, 2012 and periodically throughout the year, we have maintained cash balances in various operating accounts in excess of federally insured limits. We limit the amount of credit exposure
with any one financial institution by evaluating the creditworthiness of the financial institutions with which we invest.

Interest Rate Risk. We are exposed to market risks related to fluctuations in
interest rates related to our term loan. As of March 31, 2012, we owed $62.0 million on this loan with an interest rate of 1.500% effective March 21, 2012 through April 23, 2012. A sensitivity analysis was performed on the outstanding
portion of our debt obligation as of March 31, 2012. Should the current weighted average interest rate increase or decrease by 10%, the resulting annual increase or decrease to interest expense would be approximately $93 thousand as of
March 31, 2012. When a sensitivity analysis was performed at March 31, 2011, the resulting annual increase or decrease to interest expense was $156 thousand.

Foreign Currency Exchange Risk. As a result of our foreign operations, we face exposure to movements in foreign currency exchange rates, primarily the Euro, British Pound, Canadian Dollar and
Indian Rupee. The current exposures arise primarily from expenses denominated in foreign currencies. NetScout currently engages in foreign currency hedging activities in order to limit these exposures. We do not use derivative financial instruments
for speculative trading purposes.

As of March 31, 2012, we had foreign currency forward contracts with notional amounts
totaling $11.2 million. The valuation of outstanding foreign currency forward contracts at March 31, 2012 resulted in a liability balance of $166 thousand, reflecting unfavorable contract rates in comparison to current market rates at this date
and an asset balance of $150 thousand reflecting favorable rates in comparison to current market rates. As of March 31, 2011, we had foreign currency forward contracts with notional amounts totaling $10.9 million. The valuation of outstanding
foreign currency forward contracts at March 31, 2011 resulted in a liability balance of $92 thousand, reflecting unfavorable contract rates in comparison to current market rates at this date and an asset balance of $158 thousand reflecting
favorable rates in comparison to current market rates.

As of March 31, 2012, NetScout, under the supervision and with the participation of our management, including the Companys
principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) promulgated under the Exchange Act. Based upon that evaluation,
our principal executive officer and principal financial officer concluded that, as of March 31, 2012, our disclosure controls and procedures were effective in ensuring that material information relating to NetScout, including its consolidated
subsidiaries, required to be disclosed by NetScout in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Commissions rules
and forms, including ensuring that such material information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required
disclosure.

During the year ended March 31, 2012, there were no changes in our internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined
in Exchange Act Rule 13a-15(f). Our internal control over financial reporting was designed to provide reasonable assurance regarding reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management assessed the effectiveness of our internal control over financial
reporting as of March 31, 2012. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control  Integrated Framework. Based on our
assessment, we concluded that our internal control over financial reporting was effective as of March 31, 2012.

The
effectiveness of the Companys internal control over financial reporting as of March 31, 2012 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included
herein at F-2 of this Annual Report on Form 10-K.

The information required by this Item 10 is included under the captions Directors and Executive Officers, Election of Directors, Section 16(a) Beneficial Ownership
Reporting Compliance, Code of Ethics, The Board of Directors and its Committees and Corporate Governance in our definitive Proxy Statement with respect to our 2012 Annual Meeting of Stockholders to be filed
with the SEC no later than 120
days after the end of the fiscal year and is incorporated herein by reference.

The information required by this Item 11 is included under the caption Compensation and Other
Information Concerning Executive Officers in our definitive Proxy Statement with respect to our 2012 Annual Meeting of Stockholders to be filed with the SEC not later than 120 days after the end of the fiscal year and is incorporated
herein by reference.

The information required by this Item 12 is included under the captions Security
Ownership of Certain Beneficial Owners and Management and Equity Compensation Plan Information in our definitive Proxy Statement with respect to our 2012 Annual Meeting of Stockholders to be filed with the SEC not later than
120 days after the end of the fiscal year and is incorporated herein by reference.

The information required by this Item 13 is included, as applicable, under
the captions Director Independence, Employment and Other Agreements and Transactions with Related Persons in our definitive Proxy Statement with respect to our 2012 Annual Meeting of Stockholders to be filed with
the SEC not later than 120 days after the end of the fiscal year and is incorporated herein by reference.

The information required by this Item 14 is included under the captions Auditors Fees and Services and Policy on
Audit Committee Pre-approval of Audit and Non-audit Services in our definitive Proxy Statement with respect to our 2012 Annual Meeting of Stockholders to be filed with the SEC not later than 120 days after the end of the fiscal year and
is incorporated herein by reference.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

NETSCOUT SYSTEMS, INC.

By:

/S/ ANIL K.
SINGHAL

Anil K. Singhal

President, Chief Executive Officer,and Chairman

Date: May 25, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

In our opinion, the consolidated financial statements listed in the index appearing under Item 15 (a)(1) present fairly, in all
material respects, the financial position of NetScout Systems, Inc. and its subsidiaries at March 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2012 in
conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15 (a)(2) presents fairly, in all material
respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of March 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for these financial
statements and the financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Managements Report on
Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Companys internal control over financial reporting
based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial
statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.